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CMCSA > SEC Filings for CMCSA > Form 10-Q on 2-May-2012All Recent SEC Filings

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Form 10-Q for COMCAST CORP


2-May-2012

Quarterly Report


ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

We are a leading provider of entertainment, information and communication products and services. On January 28, 2011, we closed the NBCUniversal transaction in which we acquired control of the businesses of NBC Universal, Inc. ("NBCUniversal"), and on July 1, 2011, we closed the Universal Orlando transaction in which we acquired the remaining 50% equity interest in Universal City Development Partners, Ltd. ("Universal Orlando") that we did not already own. We report our operations as the following five reportable business segments.

Cable Communications

We are one of the nation's leading providers of video, high-speed Internet and voice services to residential and business customers. As of March 31, 2012, our cable systems served 22.3 million video customers, 18.6 million high-speed Internet customers and 9.5 million voice customers and passed more than 52 million homes and businesses in 39 states and the District of Columbia. Our Cable Communications segment generates revenue primarily from subscriptions to our cable services, which we market individually and in packages, and from the sale of advertising. During the three months ended March 31, 2012, our Cable Communications segment generated 64% of our consolidated revenue and over 80% of our operating income (loss) before depreciation and amortization.

NBCUniversal

NBCUniversal is a leading media and entertainment company that develops, produces and distributes entertainment, news and information, sports and other content for global audiences.

Cable Networks

Our Cable Networks segment consists primarily of our national cable networks, which provide entertainment, news and information, and sports programming, our regional sports and news networks, our international cable networks, our cable television production studio, and our related digital media properties. Our Cable Networks segment generates revenue primarily from the distribution of our cable network programming to multichannel video providers, the sale of advertising and the licensing and sale of our owned programming.

Broadcast Television

Our Broadcast Television segment consists primarily of the NBC and Telemundo broadcast networks, our NBC and Telemundo owned local television stations, our broadcast television production operations, and our related digital media properties. Our Broadcast Television segment generates revenue primarily from the sale of advertising and the licensing and sale of our owned programming.

Filmed Entertainment

Our Filmed Entertainment segment consists of the operations of Universal Pictures, including Focus Features, which produces, acquires, markets and distributes filmed entertainment worldwide in various media formats for theatrical, home entertainment, television and other distribution platforms. We also develop, produce and license stage plays. Our Filmed Entertainment segment generates revenue primarily from the worldwide theatrical release of our owned and acquired films, content licensing and home entertainment.

Theme Parks

Our Theme Parks segment consists primarily of our Universal theme parks in Orlando and Hollywood. We also receive fees related to intellectual property licenses and other services from third parties that own and operate Universal Studios Japan and Universal Studios Singapore. Our Theme Parks segment generates revenue primarily from theme park attendance and per capita spending, as well as from licensing and other fees. Per capita spending includes ticket price and in-park spending on food, beverage and merchandise.


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Other

Our other business interests primarily include Comcast Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center, a large, multipurpose arena in Philadelphia. Comcast Spectacor also owns Global Spectrum, which provides facilities management services, and Ovations Food Services, which provides food services for sporting events, concerts and other events.

Consolidated Operating Results



                                                      Three Months Ended            Increase/
                                                           March 31                 (Decrease)
(in millions)                                        2012            2011
Revenue                                            $  14,878       $  12,128               22.7 %
Costs and Expenses:
Operating costs and expenses                          10,190           8,062               26.4
Depreciation                                           1,529           1,486                2.9
Amortization                                             401             356               12.3
Operating income                                       2,758           2,224               24.0
Other income (expense) items, net                       (561 )          (589 )             (4.8 )
Income before income taxes                             2,197           1,635               34.4
Income tax expense                                      (750 )          (596 )             26.0
Net income                                             1,447           1,039               39.3
Net (income) loss attributable to
noncontrolling interests                                (223 )           (96 )            134.4
Net income attributable to Comcast Corporation     $   1,224       $     943               29.7 %

All percentages are calculated based on actual amounts. Minor differences may exist due to rounding.

The comparability of our consolidated results of operations was impacted by the NBCUniversal transaction, which closed on January 28, 2011, and the Universal Orlando transaction, which closed on July 1, 2011. NBCUniversal's and Universal Orlando's results of operations are included in our consolidated financial statements following their respective acquisition dates.

We also incurred significant transaction costs directly related to the NBCUniversal transaction during the three months ended March 31, 2011. Incremental expenses were primarily related to legal, accounting and valuation services and investment banking fees. In addition, NBCUniversal incurred transaction-related costs associated with severance and other related compensation charges. Total transaction-related expenses incurred during the three months ended March 31, 2011 were $123 million.

For a more complete discussion of the NBCUniversal and Universal Orlando transactions, refer to our consolidated financial statements included in our 2011 Annual Report on Form 10-K.

Each of our businesses is subject to seasonal and cyclical variations. Revenue and operating costs and expenses in our Broadcast Television segment are cyclical as a result of our periodic broadcasts of the Olympic Games and Super Bowl games. During the three months ended March 31, 2012, we broadcast the 2012 Super Bowl. Our advertising revenue increased as a result of increased demand for advertising time and our operating costs and expenses also increased as a result of our production costs and amortization of the related rights fees.

Consolidated Revenue

Our Cable Communications segment and the NBCUniversal segments accounted for substantially all of the increase in consolidated revenue for the three months ended March 31, 2012. The remaining changes in consolidated revenue related to our other business activities, primarily Comcast Spectacor. Revenue for our Cable Communications and NBCUniversal segments is discussed separately under the heading "Segment Operating Results."


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Consolidated Operating Costs and Expenses

Our Cable Communications segment and the NBCUniversal segments accounted for substantially all of the increase in consolidated operating costs and expenses for the three months ended March 31, 2012. The remaining changes in consolidated operating costs and expenses related to our other business activities, primarily Comcast Spectacor. Operating costs and expenses for our Cable Communications and NBCUniversal segments are discussed separately under the heading "Segment Operating Results."

Consolidated Depreciation and Amortization

Consolidated depreciation and amortization increased for the three months ended March 31, 2012 primarily due to the NBCUniversal and Universal Orlando transactions.

Segment Operating Results

Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use operating income
(loss) before depreciation and amortization, excluding impairment charges related to fixed and intangible assets and gains or losses from the sale of assets, if any, as the measure of profit or loss for our operating segments. This measure eliminates the significant level of noncash depreciation and amortization expense that results from the capital-intensive nature of certain of our businesses and from intangible assets recognized in business combinations. Additionally, it is unaffected by our capital structure or investment activities. We use this measure to evaluate our consolidated operating performance and the operating performance of our operating segments and to allocate resources and capital to our operating segments. It is also a significant performance measure in our annual incentive compensation programs. We believe that this measure is useful to investors because it is one of the bases for comparing our operating performance with other companies in our industries, although our measure may not be directly comparable to similar measures used by other companies. Because we use operating income (loss) before depreciation and amortization to measure our segment profit or loss, we reconcile it to operating income, the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles in the United States ("GAAP"), in Note 15 to our condensed consolidated financial statements. This measure should not be considered a substitute for operating income (loss), net income attributable to Comcast Corporation, net cash provided by operating activities, or other measures of performance or liquidity we have reported in accordance with GAAP.

Cable Communications Segment-Results of Operations



                                                    Three Months Ended                Increase/
                                                         March 31                    (Decrease)
(in millions)                                      2012             2011           $            %
Revenue
Residential:
Video                                           $    4,969       $    4,891      $   78          1.6 %
High-speed Internet                                  2,323            2,106         217         10.3
Voice                                                  878              860          18          2.0
Business services                                      541              394         147         37.0
Advertising                                            476              455          21          4.8
Other                                                  412              378          34          8.9
Total revenue                                        9,599            9,084         515          5.7
Operating costs and expenses
Programming                                          2,076            1,969         107          5.5
Technical labor                                        588              593          (5 )       (0.9 )
Customer service                                       494              469          25          5.2
Marketing                                              630              564          66         11.7
Other                                                1,856            1,740         116          6.6
Total operating costs and expenses                   5,644            5,335         309          5.8
Operating income before depreciation and
amortization                                    $    3,955       $    3,749      $  206          5.5 %


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                                Customer Metrics



                                              Total Customers                            Net Additional Customers
                                                                                            Three Months Ended
(in thousands)                     March 31, 2012         March 31, 2011                      March 31, 2012
Video customers                             22,294                 22,751                                     (37)
High-speed Internet customers               18,582                 17,403                                     439
Voice customers                              9,506                  8,870                                     164

Customer data include residential and business customers.

Cable Communications Segment-Revenue

Our average monthly total revenue per video customer for the three months ended March 31, 2012 increased to $143 from $133 for the three months ended March 31, 2011. The increase in average monthly total revenue per video customer was primarily due to increases in the number of residential customers receiving multiple services, rate adjustments, higher contributions from business services and declines in the total number of video customers.

Video

Our video revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to rate adjustments, offset by declines in the number of residential video customers. For the three months ended March 31, 2012, the number of video customers decreased primarily due to competitive pressures in our service areas. We expect further declines in the number of residential video customers during the remainder of 2012. As of March 31, 2012, 54% of our digital video customers subscribed to at least one of our high-definition television ("HDTV") and digital video recorder ("DVR") services.

High-Speed Internet

Our high-speed Internet revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to increases in the number of residential customers, rate adjustments and additional customers receiving higher levels of service.

Voice

Our voice revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to increases in the number of residential customers.

Business Services

Our business services revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to increases in the number of customers.

Advertising

Our advertising revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to improvements in the local advertising market.

Other

Our other revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to an increase in franchise and other regulatory fees.

Cable Communications Segment-Operating Costs and Expenses

Programming expenses increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to increases in rates and additional programming options offered to our customers. Technical labor expenses remained relatively flat for the three months ended March 31, 2012 compared to the same period in 2011. Customer service expenses increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to an increase in personnel costs associated with higher levels of customer service activity. Marketing expenses increased for the three months ended March 31, 2012 compared to the same


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period in 2011 primarily due to increases in sales employees and media spending for residential and business services. Other operating costs and expenses increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to an increase in activity related to business services and an increase in franchise and other regulatory fees.

NBCUniversal Segments Overview

The discussion below compares the NBCUniversal segments' actual results for the three months ended March 31, 2012 to pro forma combined results for the three months ended March 31, 2011. Management believes reviewing our operating results by combining actual and pro forma results for the NBCUniversal segments for 2011 is more useful in identifying trends in, or reaching conclusions regarding, the overall operating performance of these segments for the current period. Our pro forma amounts presented in the tables below include adjustments as if the NBCUniversal and Universal Orlando transactions had occurred on January 1, 2010. Our pro forma data was also adjusted for the effects of acquisition accounting and the elimination of costs and expenses directly related to the transactions but does not include adjustments for costs related to integration activities, cost savings or synergies that have been or may be achieved by the combined businesses. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the NBCUniversal contributed businesses or Universal Orlando since January 1, 2010, nor of our future results.

The operating results of the NBCUniversal segments for the three months ended March 31, 2012 and 2011 are presented in the table below.

                                           2012                                                       2011
                                                                                                                            Pro Forma                          Increase/
                                        Actual(a)                         Actual(a)               Pro Forma(b)               Combined                         (Decrease)
                                    Three Months Ended                Three Months Ended          NBCUniversal          Three Months Ended
(in millions)                            March 31                          March 31                Businesses                March 31                      $             %
Revenue
Cable Networks                     $              2,138              $              1,632        $          388        $              2,020              $ 118             5.8 %
Broadcast Television                              1,851                               888                   464                       1,352                499            36.9
Filmed Entertainment                              1,192                               622                   353                         975                217            22.3
Theme Parks                                         412                               275                   115                         390                 22             5.7
Headquarters, other and
eliminations                                       (121 )                            (274 )                 176                         (98 )              (23 )         (23.4 )
Total revenue                      $              5,472              $              3,143        $        1,496        $              4,639              $ 833            18.0 %
Operating Income Before
Depreciation and Amortization
Cable Networks                     $                805              $                665        $          152        $                817              $ (12 )          (1.4 )%
Broadcast Television                                (10 )                              35                   (15 )                        20                (30 )        (149.4 )
Filmed Entertainment                                  6                              (143 )                  (3 )                      (146 )              152           104.3
Theme Parks                                         157                                97                    37                         134                 23            17.1
Headquarters, other and
eliminations                                       (145 )                            (196 )                 (24 )                      (220 )               75            33.6
Total operating income before
depreciation and amortization      $                813              $                458        $          147        $                605              $ 208            34.3 %

(a) Actual amounts include the results of operations of the businesses we contributed to NBCUniversal for the three months ended March 31, 2012 and 2011, as well as the results of operations for the NBCUniversal acquired businesses and Universal Orlando for the three months ended March 31, 2012 and for the period January 29, 2011 through March 31, 2011. Headquarters, other and eliminations includes the elimination of the results of operations for Universal Orlando for the period January 29, 2011 through March 31, 2011 in order to reconcile to our condensed consolidated financial statements because Universal Orlando was recorded as an equity method investment during that period.

(b) Pro forma amounts include the results of operations for the NBCUniversal acquired businesses and Universal Orlando for the period January 1, 2011 through January 28, 2011 and other pro forma adjustments that include the effects of acquisition accounting.


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Cable Networks Segment-Actual and Pro Forma Results of Operations



                                          2012                                                    2011
                                                                                                                       Pro Forma                        Increase/
                                       Actual(a)                        Actual(a)             Pro Forma(b)              Combined                        (Decrease)
                                   Three Months Ended               Three Months Ended        NBCUniversal         Three Months Ended
(in millions)                           March 31                         March 31              Businesses               March 31                     $             %
Revenue
Distribution                      $              1,143             $                913       $         188       $              1,101             $   42           3.8 %
Advertising                                        814                              607                 162                        769                 45           5.9
Other                                              181                              112                  38                        150                 31          20.5
Total revenue                                    2,138                            1,632                 388                      2,020                118           5.8
Operating costs and expenses                     1,333                              967                 236                      1,203                130          10.7
Operating income before
depreciation and amortization     $                805             $                665       $         152       $                817             $  (12 )        (1.4 )%

(a) Actual amounts include the results of operations for the Comcast Content Business for the three months ended March 31, 2012 and 2011, and the results of operations for the NBCUniversal acquired businesses for the three months ended March 31, 2012 and for the period January 29, 2011 through March 31, 2011.

(b) Pro forma amounts include the results of operations for the NBCUniversal acquired businesses for the period January 1, 2011 through January 28, 2011 and other pro forma adjustments that include the effects of acquisition accounting and the elimination of operating costs and expenses directly related to the transaction.

Cable Networks Segment-Revenue

Our Cable Networks revenue increased for the three months ended March 31, 2012 compared to the same period in 2011 due to increases in distribution, advertising and other revenue. The increase in distribution revenue was primarily due to rate increases, and the increase in advertising revenue was primarily due to an increase in the price of advertising units sold. Other revenue increased primarily due to an increase in the licensing of our owned content from our cable production studio.

For the three months ended March 31, 2012 and 2011, 13% and 14%, respectively, of our total Cable Networks segment revenue was generated from our Cable Communications segment. These amounts are eliminated in our condensed consolidated financial statements but are included in the amounts presented above.

Cable Networks Segment-Operating Costs and Expenses

Our operating costs and expenses increased for the three months ended March 31, 2012 compared to the same period in 2011 primarily due to higher programming and production expenses, including an increase in rights costs associated with additional NBA games in the current period compared to the prior year period, resulting from the condensed NBA schedule following the lockout at the beginning of the 2011-12 season.

Broadcast Television Segment-Actual and Pro Forma Results of Operations



                                         2012                                        2011
                                                                                                      Pro Forma                 Increase/
                                      Actual(a)                Actual(a)         Pro Forma(b)          Combined                 (Decrease)
                                                             For the Period
                                     Three Months              January 29                            Three Months
                                        Ended                   through          NBCUniversal           Ended
(in millions)                          March 31                 March 31          Businesses           March 31              $            %
Revenue
Advertising                         $        1,266          $            595     $         315      $          910         $  356          39.2 %
Content licensing                              457                       219               111                 330            127          38.5
Other                                          128                        74                38                 112             16          13.2
Total revenue                                1,851                       888               464               1,352            499          36.9
Operating costs and expenses                 1,861                       853               479               1,332            529          39.6
Operating income (loss) before

depreciation and amortization $ (10 ) $ 35 $ (15 ) $ 20 $ (30 ) (149.4 )%

(a) Actual amounts include the results of operations for the NBCUniversal acquired businesses for the three months ended March 31, 2012 and for the period January 29, 2011 through March 31, 2011.

. . .

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