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CMCSA > SEC Filings for CMCSA > Form 10-Q on 26-Oct-2012All Recent SEC Filings

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Form 10-Q for COMCAST CORP


26-Oct-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 NBCUniversal, and on July 1, 2011, we closed the Universal Orlando transaction in which we acquired the remaining 50% equity interest in 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 September 30, 2012, our cable systems served 22 million video customers, 19 million high-speed Internet customers and 9.8 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 nine months ended September 30, 2012, our Cable Communications segment generated 63% of our consolidated revenue and more than 80% of our operating income 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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Corporate and 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 venue management services, and Ovations Food Services, which provides food services for sporting events, concerts and other events.

Significant Developments

The following are the more significant developments in our businesses during the nine months ended September 30, 2012:

our broadcasts of the 2012 Super Bowl and 2012 London Olympics, which resulted in a combined increase in Broadcast Television segment revenue of $1.4 billion

the completion of SpectrumCo's transaction to sell its AWS spectrum licenses to Verizon Wireless for $3.6 billion, of which our portion of the proceeds was $2.3 billion

the redemption by A&E Television Networks of NBCUniversal's 15.8% equity interest in A&E Television Networks for $3 billion in cash proceeds

Consolidated Operating Results



                                  Three Months Ended          Increase/          Nine Months Ended          Increase/
                                     September 30             (Decrease)            September 30            (Decrease)
(in millions)                     2012           2011                            2012          2011
Revenue                         $  16,544      $ 14,339              15.4 %    $ 46,633      $ 40,800              14.3 %
Costs and Expenses:
Operating costs and expenses       11,536         9,765              18.1        31,933        27,359              16.7
Depreciation                        1,549         1,540               0.6         4,594         4,504               2.0
Amortization                          411           393               4.9         1,221         1,134               7.8
Operating income                    3,048         2,641              15.4         8,885         7,803              13.9
Other income (expense) items,
net                                 1,335          (836 )              NM           139        (1,982 )           107.1
Income before income taxes          4,383         1,805             142.8         9,024         5,821              55.0
Income tax expense                 (1,405 )        (639 )           120.0        (2,966 )      (2,249 )            31.9
Net income                          2,978         1,166             155.4         6,058         3,572              69.6
Net (income) loss
attributable to
noncontrolling interests             (865 )        (258 )              NM        (1,373 )        (699 )            96.5
Net income attributable to
Comcast Corporation             $   2,113      $    908             132.8 %    $  4,685      $  2,873              63.0 %

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

Percentage changes that are considered not meaningful are denoted with NM.

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 transaction costs directly related to the NBCUniversal transaction in 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 and nine months ended September 30, 2011 were $14 million and $143 million, respectively.

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.


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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 the Super Bowl. Because we broadcasted the 2012 Super Bowl in February 2012 and the 2012 London Olympics in July and August 2012, during the nine months ended September 30, 2012, 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 programming and production costs and amortization of the related rights fees. All of the revenue and operating costs and expenses associated with our broadcasts of the 2012 Super Bowl and the 2012 London Olympics are reported in our Broadcast Television segment.

Consolidated Revenue

Our Cable Communications segment and the NBCUniversal segments accounted for substantially all of the increases in consolidated revenue for the three and nine months ended September 30, 2012 compared to the same periods in 2011. 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."

Consolidated Operating Costs and Expenses

Our Cable Communications segment and the NBCUniversal segments accounted for substantially all of the increases in consolidated operating costs and expenses for the three and nine months ended September 30, 2012 compared to the same periods in 2011. 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 slightly for the three months ended September 30, 2012 compared to the same period in 2011. Consolidated depreciation and amortization increased for the nine months ended September 30, 2012 compared to the same period in 2011 primarily due to the impact of consolidating NBCUniversal and Universal Orlando following the close of each transaction.

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 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.


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Cable Communications Segment-Results of Operations



                                                 Three Months Ended                    Increase/
                                                    September 30                      (Decrease)
(in millions)                                  2012              2011            $                %
Revenue
Residential:
Video                                       $    5,021        $    4,892       $  129                2.7 %
High-speed Internet                              2,403             2,209          194                8.8
Voice                                              895               883           12                1.5
Business services                                  621               464          157               33.6
Advertising                                        607               492          115               23.5
Other                                              429               391           38                9.4
Total revenue                                    9,976             9,331          645                6.9
Operating costs and expenses
Programming                                      2,095             1,960          135                6.9
Technical labor                                    590               597           (7 )             (1.1 )
Customer service                                   485               474           11                2.4
Marketing                                          729               649           80               12.3
Other                                            2,079             1,937          142                7.2
Total operating costs and expenses               5,978             5,617          361                6.4
Operating income before depreciation
and amortization                            $    3,998        $    3,714       $  284                7.7 %




                                                Nine Months Ended                   Increase/
                                                  September 30                      (Decrease)
(in millions)                                 2012            2011             $                %
Revenue
Residential:
Video                                       $  15,069       $  14,724       $   345                2.3 %
High-speed Internet                             7,106           6,501           605                9.3
Voice                                           2,662           2,621            41                1.6
Business services                               1,744           1,293           451               34.9
Advertising                                     1,635           1,459           176               12.1
Other                                           1,256           1,158            98                8.3
Total revenue                                  29,472          27,756         1,716                6.2
Operating costs and expenses
Programming                                     6,280           5,882           398                6.8
Technical labor                                 1,757           1,758            (1 )             (0.0 )
Customer service                                1,460           1,403            57                4.1
Marketing                                       2,024           1,819           205               11.3
Other                                           5,897           5,545           352                6.3
Total operating costs and expenses             17,418          16,407         1,011                6.2
Operating income before depreciation
and amortization                            $  12,054       $  11,349       $   705                6.2 %

                                Customer Metrics



                                              Total Customers                                        Net Additional Customers
                                    September 30,          September 30,                 Three Months Ended             Nine Months Ended
(in thousands)                          2012                   2011                                     September 30, 2012
Video customers                             22,002                 22,348                               (117 )                        (330 )
High-speed Internet customers               19,025                 17,808                                287                           882
Voice customers                              9,787                  9,196                                123                           445

Customer data includes residential and business customers.


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Cable Communications Segment-Revenue

Our average monthly total revenue per video customer for the three months ended September 30, 2012 increased to $151 from $139 for the three months ended September 30, 2011. Our average monthly total revenue per video customer for the nine months ended September 30, 2012 increased to $148 from $137 for the nine months ended September 30, 2011. The increases in average monthly total revenue per video customer were 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 and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to rate adjustments and additional residential customers receiving higher levels of video service, which were partially offset by declines in the number of residential video customers. For the three and nine months ended September 30, 2012, the number of video customers decreased primarily due to competitive pressures in our service areas. We may experience further declines in the number of residential video customers. As of September 30, 2012, 54% of our digital video customers subscribed to at least one of our high-definition television ("HDTV") or digital video recorder ("DVR") services.

High-Speed Internet

Our high-speed Internet revenue increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in the number of residential customers, rate adjustments and additional residential customers receiving higher levels of service.

Voice

Our voice revenue increased slightly for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in the number of residential customers, including those receiving multiple services as part of promotional offers.

Business Services

Our business services revenue increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in the number of business customers.

Advertising

Our advertising revenue increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in political and automotive advertising revenue and improvements in the local and regional advertising markets.

Other

Our other revenue increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in franchise and other regulatory fees.

Cable Communications Segment-Operating Costs and Expenses

Programming expenses increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in fees charged by programming networks and fees incurred to secure rights for additional programming options for our customers. Technical labor expenses decreased slightly for the three months ended September 30, 2012 and remained flat for the nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to an increase in customer self-installation activities. Customer service expenses increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in labor costs associated with higher levels of customer service activity. Marketing expenses increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in the number of sales employees and media spending for residential and business services. Other operating costs and expenses increased for the three and nine months ended September 30, 2012 compared to the same periods in 2011 primarily due to increases in activity related to business services, advertising, network operations, and franchise and other regulatory fees.


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NBCUniversal Segments Overview

The discussion below compares the NBCUniversal segments' actual results for the three months ended September 30, 2012 to the actual results for the same period in 2011, and the actual results for the nine months ended September 30, 2012 to pro forma combined results for the same period in 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 and nine months ended September 30, 2012 and 2011 are presented in the table below.

                                                         Actual
                                                   Three Months Ended                      Increase/
                                                      September 30                         (Decrease)
(in millions)                                    2012              2011                  $            %
Revenue
Cable Networks                                 $   2,165        $    2,097            $    68          3.2 %
Broadcast Television                               2,777             1,511              1,266         83.8
Filmed Entertainment                               1,355             1,096                259         23.6
Theme Parks                                          614               580                 34          5.8
Headquarters, other and eliminations                 (89 )             (84 )               (5 )       (5.5 )
Total revenue                                  $   6,822        $    5,200            $ 1,622         31.2 %
Operating Income Before Depreciation and
Amortization
Cable Networks                                 $     809        $      751            $    58          7.6 %
Broadcast Television                                  88                (7 )               95           NM
Filmed Entertainment                                  72                54                 18         31.1
Theme Parks                                          316               285                 31         11.2
Headquarters, other and eliminations                (145 )            (132 )              (13 )       (8.6 )
Total operating income before depreciation
and amortization                               $   1,140        $      951            $   189         19.9 %


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                                               2012                                          2011
                                                                                                                Pro Forma
                                              Actual                   Actual               Pro Forma            Combined                 Increase/(Decrease)
                                               Nine                     Nine                                       Nine
                                              Months                   Months                                     Months
                                              Ended                     Ended             NBCUniversal            Ended
(in millions)                              September 30            September 30(a)        Businesses(b)        September 30               $                 %
Revenue
Cable Networks                            $        6,555          $           5,902      $           388      $        6,290          $      265              4.2 %
Broadcast Television                               6,168                      4,094                  464               4,558               1,610             35.3
Filmed Entertainment                               3,778                      2,972                  353               3,325                 453             13.6
Theme Parks                                        1,565                      1,376                  115               1,491                  74              4.9
Headquarters, other and eliminations                (268 )                     (822 )                544                (278 )                10              3.8
Total revenue                             $       17,798          $          13,522      $         1,864      $       15,386          $    2,412             15.7 %
Operating Income Before Depreciation
and Amortization
Cable Networks                            $        2,402          $           2,262      $           152      $        2,414          $      (12 )           (0.5 )%
Broadcast Television                                 274                        218                  (15 )               203                  71             35.2
Filmed Entertainment                                  (5 )                      (62 )                 (3 )               (65 )                60             92.2
Theme Parks                                          708                        607                   37                 644                  64             10.0
Headquarters, other and eliminations                (444 )                     (615 )                136                (479 )                35              7.5
Total operating income before
depreciation and amortization             $        2,935          $           2,410      $           307      $        2,717          $      218              8.0 %

(a) Actual amounts include the results of operations of the businesses we contributed to NBCUniversal for the nine months ended September 30, 2011, as well as the results of operations for the NBCUniversal acquired businesses and Universal Orlando for the period January 29, 2011 through September 30, 2011. Headquarters, other and eliminations includes the elimination of the results of operations for Universal Orlando for the period January 29, 2011 through June 30, 2011 in order to reconcile to our condensed consolidated . . .

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