COMCAST CORP - Quarter Report: 2019 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2019
Or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
 | ||
Commission File Number | Exact Name of Registrant; State of Incorporation; Address and Telephone Number of Principal Executive Offices | I.R.S. Employer Identification No. |
001-32871 | COMCAST CORPORATION | 27-0000798 |
Pennsylvania
One Comcast Center
Philadelphia, PA 19103-2838
(215) 286-1700
001-36438 | NBCUNIVERSAL MEDIA, LLC | 14-1682529 |
Delaware
30 Rockefeller Plaza
New York, NY 10112-0015
(212) 664-4444
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Class A Common Stock, $0.01 par value | CMCSA | NASDAQ Global Select Market | ||
2.0% Exchangeable Subordinated Debentures due 2029 | CCZ | New York Stock Exchange | ||
5.50% Notes due 2029 | CCGBP29 | New York Stock Exchange | ||
9.455% Guaranteed Notes due 2022 | CMCSA/22 | New York Stock Exchange | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Comcast Corporation | Yes | ☒ | No | ☐ | ||||
NBCUniversal Media, LLC | Yes | ☒ | No | ☐ | ||||
Comcast Corporation | Yes | ☒ | No | ☐ | ||||
NBCUniversal Media, LLC | Yes | ☒ | No | ☐ | ||||
Comcast Corporation | Large accelerated filer | ☒ | Accelerated filer | ☐ | Non-accelerated filer | ☐ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
NBCUniversal Media, LLC | Large accelerated filer | ☐ | Accelerated filer | ☐ | Non-accelerated filer | ☒ | Smaller reporting company | ☐ | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark whether the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Comcast Corporation | ☐ |
NBCUniversal Media, LLC | ☐ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).
Comcast Corporation | Yes | ☐ | No | ☒ | ||||
NBCUniversal Media, LLC | Yes | ☐ | No | ☒ | ||||
As of September 30, 2019, there were 4,539,805,879 shares of Comcast Corporation Class A common stock and 9,444,375 shares of Class B common stock outstanding.
Not applicable for NBCUniversal Media, LLC.
NBCUniversal Media, LLC meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format.
TABLE OF CONTENTS
Page Number | ||
Item 1. | ||
Item 2. | ||
Item 3. | ||
Item 4. | ||
Item 1. | ||
Item 1A. | ||
Item 6. | ||
Explanatory Note
This Quarterly Report on Form 10-Q is a combined report being filed separately by Comcast Corporation (“Comcast”) and NBCUniversal Media, LLC (“NBCUniversal”). Comcast owns all of the common equity interests in NBCUniversal, and NBCUniversal meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing its information within this Form 10-Q with the reduced disclosure format. Each of Comcast and NBCUniversal is filing on its own behalf the information contained in this report that relates to itself, and neither company makes any representation as to information relating to the other company. Where information or an explanation is provided that is substantially the same for each company, such information or explanation has been combined in this report. Where information or an explanation is not substantially the same for each company, separate information and explanation has been provided. In addition, separate condensed consolidated financial statements for each company, along with notes to the condensed consolidated financial statements, are included in this report.
Unless indicated otherwise, throughout this Quarterly Report on Form 10-Q, we refer to Comcast and its consolidated subsidiaries, including NBCUniversal and its consolidated subsidiaries, as “we,” “us” and “our;” Comcast Cable Communications, LLC and its consolidated subsidiaries as “Comcast Cable;” Comcast Holdings Corporation as “Comcast Holdings;” NBCUniversal, LLC as “NBCUniversal Holdings;” NBCUniversal Enterprise, Inc. as “NBCUniversal Enterprise;” and Sky Limited and its consolidated subsidiaries as “Sky.”
This Quarterly Report on Form 10-Q is for the three and nine months ended September 30, 2019. This Quarterly Report on Form 10-Q modifies and supersedes documents filed before it. The Securities and Exchange Commission (“SEC”) allows us to “incorporate by reference” information that we file with it, which means that we can disclose important information to you by referring you directly to those documents. Information incorporated by reference is considered to be part of this Quarterly Report on Form 10-Q. In addition, information that we file with the SEC in the future will automatically update and supersede information contained in this Quarterly Report on Form 10-Q.
You should carefully review the information contained in this Quarterly Report on Form 10-Q and particularly consider any risk factors set forth in this Quarterly Report on Form 10-Q and in other reports or documents that we file from time to time with the SEC. In this Quarterly Report on Form 10-Q, we state our beliefs of future events and of our future financial performance. In some cases, you can identify these so-called “forward-looking statements” by words such as “may,” “will,” “should,” “expects,” “believes,” “estimates,” “potential,” or “continue,” or the negative of these words, and other comparable words. You should be aware that these statements are only our predictions. In evaluating these statements, you should consider various factors, including
the risks outlined below and in other reports we file with the SEC. Actual events or our actual results could differ materially from our forward-looking statements as a result of any such factors, which could adversely affect our businesses, results of operations or financial condition. We undertake no obligation to update any forward-looking statements.
Our businesses may be affected by, among other things, the following:
• | our businesses currently face a wide range of competition, and our businesses and results of operations could be adversely affected if we do not compete effectively |
• | changes in consumer behavior driven by online video distribution platforms for viewing content could adversely affect our businesses and challenge existing business models |
• | a decline in advertisers’ expenditures or changes in advertising markets could negatively impact our businesses |
• | our businesses depend on keeping pace with technological developments |
• | we are subject to regulation by federal, state, local and foreign authorities, which impose additional costs and restrictions on our businesses |
• | programming expenses for our video services are increasing, which could adversely affect Cable Communications’ and Sky’s video businesses |
• | NBCUniversal’s and Sky’s success depends on consumer acceptance of their content, and their businesses may be adversely affected if their content fails to achieve sufficient consumer acceptance or the costs to create or acquire content increase |
• | the loss of NBCUniversal’s programming distribution agreements, or the renewal of these agreements on less favorable terms, could adversely affect our businesses |
• | less favorable regulation, the loss of Sky’s transmission agreements with satellite or telecommunications providers or the renewal of these agreements on less favorable terms, could adversely affect Sky’s businesses |
• | the loss of Sky’s wholesale distribution agreements with traditional multichannel video providers could adversely affect Sky’s businesses |
• | we rely on network and information systems and other technologies, as well as key properties, and a disruption, cyber attack, failure or destruction of such networks, systems, technologies or properties may disrupt our businesses |
• | our businesses depend on using and protecting certain intellectual property rights and on not infringing the intellectual property rights of others |
• | we may be unable to obtain necessary hardware, software and operational support |
• | weak economic conditions may have a negative impact on our businesses |
• | acquisitions, including our acquisition of Sky, and other strategic initiatives present many risks, and we may not realize the financial and strategic goals that we had contemplated |
• | unfavorable litigation or governmental investigation results could require us to pay significant amounts or lead to onerous operating procedures |
• | labor disputes, whether involving employees or sports organizations, may disrupt our operations and adversely affect our businesses |
• | the loss of key management personnel or popular on-air and creative talent could have an adverse effect on our businesses |
• | we face risks relating to doing business internationally that could adversely affect our businesses |
• | our Class B common stock has substantial voting rights and separate approval rights over several potentially material transactions, and our Chairman and CEO has considerable influence over our company through his beneficial ownership of our Class B common stock |
PART I: FINANCIAL INFORMATION
ITEM 1: FINANCIAL STATEMENTS
Comcast Corporation
Condensed Consolidated Statement of Income
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions, except per share data) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Revenue | $ | 26,827 | $ | 22,135 | $ | 80,544 | $ | 66,661 | |||||||
Costs and Expenses: | |||||||||||||||
Programming and production | 8,316 | 6,711 | 25,140 | 20,440 | |||||||||||
Other operating and administrative | 8,090 | 6,444 | 24,076 | 19,323 | |||||||||||
Advertising, marketing and promotion | 1,901 | 1,667 | 5,674 | 4,924 | |||||||||||
Depreciation | 2,124 | 2,038 | 6,561 | 6,070 | |||||||||||
Amortization | 1,056 | 580 | 3,215 | 1,750 | |||||||||||
Other operating gains | — | (141 | ) | — | (341 | ) | |||||||||
Total costs and expenses | 21,487 | 17,299 | 64,666 | 52,166 | |||||||||||
Operating income | 5,340 | 4,836 | 15,878 | 14,495 | |||||||||||
Interest expense | (1,167 | ) | (830 | ) | (3,454 | ) | (2,413 | ) | |||||||
Investment and other income (loss), net | (110 | ) | (111 | ) | 511 | 92 | |||||||||
Income before income taxes | 4,063 | 3,895 | 12,935 | 12,174 | |||||||||||
Income tax expense | (775 | ) | (999 | ) | (2,812 | ) | (2,894 | ) | |||||||
Net income | 3,288 | 2,896 | 10,123 | 9,280 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | 71 | 10 | 228 | 60 | |||||||||||
Net income attributable to Comcast Corporation | $ | 3,217 | $ | 2,886 | $ | 9,895 | $ | 9,220 | |||||||
Basic earnings per common share attributable to Comcast Corporation shareholders | $ | 0.71 | $ | 0.63 | $ | 2.18 | $ | 2.00 | |||||||
Diluted earnings per common share attributable to Comcast Corporation shareholders | $ | 0.70 | $ | 0.62 | $ | 2.15 | $ | 1.98 | |||||||
See accompanying notes to condensed consolidated financial statements.
1
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income | $ | 3,288 | $ | 2,896 | $ | 10,123 | $ | 9,280 | |||||||
Unrealized gains (losses) on marketable securities, net of deferred taxes of $—, $(1), $— and $(1) | 2 | 2 | 4 | — | |||||||||||
Deferred gains (losses) on cash flow hedges, net of deferred taxes of $(35), $5, $(24) and $8 | 82 | (15 | ) | 146 | (26 | ) | |||||||||
Amounts reclassified to net income: | |||||||||||||||
Realized (gains) losses on cash flow hedges, net of deferred taxes of $11, $(5), $7 and $(13) | (52 | ) | 17 | (39 | ) | 43 | |||||||||
Employee benefit obligations, net of deferred taxes of $3, $2, $8 and $7 | (8 | ) | (8 | ) | (24 | ) | (24 | ) | |||||||
Currency translation adjustments, net of deferred taxes of $(80), $25, $(98) and $22 | (1,144 | ) | (103 | ) | (903 | ) | (119 | ) | |||||||
Comprehensive income | 2,168 | 2,789 | 9,307 | 9,154 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | 71 | 10 | 228 | 60 | |||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | (23 | ) | (20 | ) | (25 | ) | (45 | ) | |||||||
Comprehensive income attributable to Comcast Corporation | $ | 2,120 | $ | 2,799 | $ | 9,104 | $ | 9,139 | |||||||
See accompanying notes to condensed consolidated financial statements.
2
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30 | |||||||
(in millions) | 2019 | 2018 | |||||
Operating Activities | |||||||
Net income | $ | 10,123 | $ | 9,280 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization and other operating gains | 9,776 | 7,479 | |||||
Share-based compensation | 790 | 607 | |||||
Noncash interest expense (income), net | 310 | 289 | |||||
Net (gain) loss on investment activity and other | (166 | ) | 118 | ||||
Deferred income taxes | 468 | 877 | |||||
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: | |||||||
Current and noncurrent receivables, net | 360 | (225 | ) | ||||
Film and television costs, net | (321 | ) | 64 | ||||
Accounts payable and accrued expenses related to trade creditors | (1,149 | ) | (85 | ) | |||
Other operating assets and liabilities | (729 | ) | 103 | ||||
Net cash provided by operating activities | 19,462 | 18,507 | |||||
Investing Activities | |||||||
Capital expenditures | (6,866 | ) | (6,607 | ) | |||
Cash paid for intangible assets | (1,686 | ) | (1,375 | ) | |||
Acquisitions and construction of real estate properties | (40 | ) | (129 | ) | |||
Construction of Universal Beijing Resort | (736 | ) | (257 | ) | |||
Acquisitions, net of cash acquired | (181 | ) | (88 | ) | |||
Proceeds from sales of businesses and investments | 208 | 127 | |||||
Purchases of investments | (1,697 | ) | (840 | ) | |||
Other | 86 | 579 | |||||
Net cash provided by (used in) investing activities | (10,912 | ) | (8,590 | ) | |||
Financing Activities | |||||||
Proceeds from (repayments of) short-term borrowings, net | (1,288 | ) | 2,909 | ||||
Proceeds from borrowings | 516 | 9,850 | |||||
Proceeds from collateralized obligation | 5,175 | — | |||||
Repurchases and repayments of debt | (9,975 | ) | (4,405 | ) | |||
Repurchases of common stock under repurchase program and employee plans | (432 | ) | (4,282 | ) | |||
Dividends paid | (2,778 | ) | (2,487 | ) | |||
Distributions to noncontrolling interests and dividends for redeemable subsidiary preferred stock | (235 | ) | (209 | ) | |||
Other | 191 | (242 | ) | ||||
Net cash provided by (used in) financing activities | (8,826 | ) | 1,134 | ||||
Impact of foreign currency on cash, cash equivalents and restricted cash | (31 | ) | — | ||||
Increase (decrease) in cash, cash equivalents and restricted cash | (307 | ) | 11,051 | ||||
Cash, cash equivalents and restricted cash, beginning of period | 3,909 | 3,571 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 3,602 | $ | 14,622 | |||
See accompanying notes to condensed consolidated financial statements.
3
Condensed Consolidated Balance Sheet
(Unaudited)
(in millions, except share data) | September 30, 2019 | December 31, 2018 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 3,507 | $ | 3,814 | |||
Receivables, net | 10,684 | 11,104 | |||||
Programming rights | 3,457 | 3,746 | |||||
Other current assets | 4,675 | 3,184 | |||||
Total current assets | 22,323 | 21,848 | |||||
Film and television costs | 8,647 | 7,837 | |||||
Investments | 7,473 | 7,883 | |||||
Investment securing collateralized obligation | 816 | — | |||||
Property and equipment, net of accumulated depreciation of $52,983 and $51,306 | 46,790 | 44,437 | |||||
Franchise rights | 59,365 | 59,365 | |||||
Goodwill | 66,913 | 66,154 | |||||
Other intangible assets, net of accumulated amortization of $16,764 and $14,194 | 35,164 | 38,358 | |||||
Other noncurrent assets, net | 8,883 | 5,802 | |||||
Total assets | $ | 256,374 | $ | 251,684 | |||
Liabilities and Equity | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued expenses related to trade creditors | $ | 10,198 | $ | 8,494 | |||
Accrued participations and residuals | 1,615 | 1,808 | |||||
Deferred revenue | 2,944 | 2,182 | |||||
Accrued expenses and other current liabilities | 10,193 | 10,721 | |||||
Current portion of long-term debt | 1,039 | 4,398 | |||||
Total current liabilities | 25,989 | 27,603 | |||||
Long-term debt, less current portion | 99,847 | 107,345 | |||||
Collateralized obligation | 5,165 | — | |||||
Deferred income taxes | 27,992 | 27,589 | |||||
Other noncurrent liabilities | 16,853 | 15,329 | |||||
Commitments and contingencies (Note 12) | |||||||
Redeemable noncontrolling interests and redeemable subsidiary preferred stock | 1,368 | 1,316 | |||||
Equity: | |||||||
Preferred stock—authorized, 20,000,000 shares; issued, zero | — | — | |||||
Class A common stock, $0.01 par value—authorized, 7,500,000,000 shares; issued, 5,412,596,907 and 5,389,309,175; outstanding, 4,539,805,879 and 4,516,518,147 | 54 | 54 | |||||
Class B common stock, $0.01 par value—authorized, 75,000,000 shares; issued and outstanding, 9,444,375 | — | — | |||||
Additional paid-in capital | 38,196 | 37,461 | |||||
Retained earnings | 48,570 | 41,983 | |||||
Treasury stock, 872,791,028 Class A common shares | (7,517 | ) | (7,517 | ) | |||
Accumulated other comprehensive income (loss) | (1,159 | ) | (368 | ) | |||
Total Comcast Corporation shareholders’ equity | 78,144 | 71,613 | |||||
Noncontrolling interests | 1,016 | 889 | |||||
Total equity | 79,160 | 72,502 | |||||
Total liabilities and equity | $ | 256,374 | $ | 251,684 | |||
See accompanying notes to condensed consolidated financial statements.
4
Condensed Consolidated Statement of Changes in Equity
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
(in millions, except per share data) | 2019 | 2018 | 2019 | 2018 | |||||||||
Redeemable Noncontrolling Interests and Redeemable Subsidiary Preferred Stock | |||||||||||||
Balance, beginning of period | $ | 1,329 | $ | 1,343 | $ | 1,316 | $ | 1,357 | |||||
Contributions from (distributions to) noncontrolling interests, net | (12 | ) | (11 | ) | (49 | ) | (42 | ) | |||||
Other | (9 | ) | (11 | ) | (28 | ) | (35 | ) | |||||
Net income (loss) | 60 | (4 | ) | 129 | 37 | ||||||||
Balance, end of period | $ | 1,368 | $ | 1,317 | $ | 1,368 | $ | 1,317 | |||||
Class A common stock | |||||||||||||
Balance, beginning of period | $ | 54 | $ | 54 | $ | 54 | $ | 55 | |||||
Repurchases of common stock under repurchase program and employee plans | — | — | — | (1 | ) | ||||||||
Balance, end of period | $ | 54 | $ | 54 | $ | 54 | $ | 54 | |||||
Additional Paid-In Capital | |||||||||||||
Balance, beginning of period | $ | 37,950 | $ | 37,427 | $ | 37,461 | $ | 37,497 | |||||
Stock compensation plans | 193 | 144 | 604 | 434 | |||||||||
Repurchases of common stock under repurchase program and employee plans | 6 | (228 | ) | (39 | ) | (757 | ) | ||||||
Employee stock purchase plans | 51 | 49 | 166 | 161 | |||||||||
Other | (4 | ) | 2 | 4 | 59 | ||||||||
Balance, end of period | $ | 38,196 | $ | 37,394 | $ | 38,196 | $ | 37,394 | |||||
Retained Earnings | |||||||||||||
Balance, beginning of period | $ | 46,425 | $ | 40,269 | $ | 41,983 | $ | 38,202 | |||||
Cumulative effects of adoption of accounting standards | — | — | — | (43 | ) | ||||||||
Repurchases of common stock under repurchase program and employee plans | (101 | ) | (1,064 | ) | (406 | ) | (3,530 | ) | |||||
Dividends declared | (965 | ) | (871 | ) | (2,893 | ) | (2,631 | ) | |||||
Other | (6 | ) | (2 | ) | (9 | ) | — | ||||||
Net income (loss) | 3,217 | 2,886 | 9,895 | 9,220 | |||||||||
Balance, end of period | $ | 48,570 | $ | 41,218 | $ | 48,570 | $ | 41,218 | |||||
Treasury Stock at Cost | |||||||||||||
Balance, beginning of period | $ | (7,517 | ) | $ | (7,517 | ) | $ | (7,517 | ) | $ | (7,517 | ) | |
Balance, end of period | $ | (7,517 | ) | $ | (7,517 | ) | $ | (7,517 | ) | $ | (7,517 | ) | |
Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Balance, beginning of period | $ | (62 | ) | $ | 461 | $ | (368 | ) | $ | 379 | |||
Cumulative effects of adoption of accounting standards | — | — | — | 76 | |||||||||
Other comprehensive income (loss) | (1,097 | ) | (87 | ) | (791 | ) | (81 | ) | |||||
Balance, end of period | $ | (1,159 | ) | $ | 374 | $ | (1,159 | ) | $ | 374 | |||
Noncontrolling Interests | |||||||||||||
Balance, beginning of period | $ | 980 | $ | 1,049 | $ | 889 | $ | 843 | |||||
Other comprehensive income (loss) | (22 | ) | (20 | ) | (24 | ) | (45 | ) | |||||
Contributions from (distributions to) noncontrolling interests, net | 50 | (40 | ) | 66 | 277 | ||||||||
Other | (3 | ) | (181 | ) | (14 | ) | (276 | ) | |||||
Net income (loss) | 11 | 14 | 99 | 23 | |||||||||
Balance, end of period | $ | 1,016 | $ | 822 | $ | 1,016 | $ | 822 | |||||
Total equity | $ | 79,160 | $ | 72,345 | $ | 79,160 | $ | 72,345 | |||||
Cash dividends declared per common share | $ | 0.21 | $ | 0.19 | $ | 0.63 | $ | 0.57 | |||||
See accompanying notes to condensed consolidated financial statements.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
Business and Basis of Presentation
We have prepared these unaudited condensed consolidated financial statements based on SEC rules that permit reduced disclosure for interim periods. These financial statements include all adjustments that are necessary for a fair presentation of our consolidated results of operations, cash flows and financial condition for the periods shown, including normal, recurring accruals and other items. The consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year.
The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). For a more complete discussion of our accounting policies and certain other information, refer to our consolidated financial statements included in our 2018 Annual Report on Form 10-K and the notes within this Form 10-Q.
In the fourth quarter of 2018, we acquired a 100% interest in Sky through a series of transactions, for total cash consideration of £30.2 billion (approximately $39.4 billion using the exchange rates on the purchase dates). See Note 6 for additional information on the transaction.
Reclassifications
Reclassifications have been made to our condensed consolidated financial statements for the prior year periods to conform to classifications used in 2019. See Note 7 for a discussion of the effects of the adoption of new accounting pronouncements on our condensed consolidated financial statements.
Note 2: Segment Information
We present our operations in six reportable business segments: (1) Comcast Cable in one reportable business segment, referred to as Cable Communications; (2) NBCUniversal in four reportable business segments: Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks (collectively, the “NBCUniversal segments”); and (3) Sky in one reportable business segment.
Our Cable Communications segment consists of the operations of Comcast Cable, which is one of the nation’s largest providers of high-speed internet, video, voice, wireless, and security and automation services (“cable services”) to residential customers under the Xfinity brand; we also provide these and other services to business customers and sell advertising.
Our Cable Networks segment consists primarily of our national cable networks that provide a variety of entertainment, news and information, and sports content; our regional sports and news networks; our international cable networks; our cable television studio production operations and various digital properties.
Our Broadcast Television segment consists primarily of the NBC and Telemundo broadcast networks, our NBC and Telemundo owned local broadcast television stations, the NBC Universo national cable network, our broadcast television studio production operations, and various digital properties.
Our Filmed Entertainment segment consists primarily of the operations of Universal Pictures, which produces, acquires, markets and distributes filmed entertainment worldwide; our films are also produced under the Illumination, DreamWorks Animation and Focus Features names.
Our Theme Parks segment consists primarily of our Universal theme parks in Orlando, Florida; Hollywood, California; and Osaka, Japan. In addition, along with a consortium of Chinese state-owned companies, we are developing a Universal theme park and resort in Beijing, China.
Our Sky segment consists of the operations of Sky, one of Europe’s leading entertainment companies, which primarily includes a direct-to-consumer business, providing video, high-speed internet, voice and wireless phone services, and a content business, operating entertainment networks, the Sky News broadcast network and Sky Sports networks.
We use Adjusted EBITDA to evaluate the profitability of our operating segments and the components of net income attributable to Comcast Corporation excluded from Adjusted EBITDA are not separately evaluated. Beginning in the first quarter of 2019, Comcast Cable’s wireless phone service and certain other Cable-related business development initiatives are now presented in the Cable Communications segment. Results were previously presented in Corporate and Other. Prior periods have been adjusted to reflect this presentation. To be consistent with our current management reporting presentation, certain 2018 operating results were reclassified related to certain NBCUniversal businesses now presented in the Sky segment. Our financial data by business segment is presented in the tables below.
6
Three Months Ended September 30, 2019 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(d) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Communications | $ | 14,584 | $ | 5,801 | $ | 1,967 | $ | 1,814 | $ | 336 | |||||
NBCUniversal | |||||||||||||||
Cable Networks | 2,771 | 955 | 184 | 9 | 4 | ||||||||||
Broadcast Television | 2,230 | 338 | 36 | 36 | 3 | ||||||||||
Filmed Entertainment | 1,706 | 195 | 21 | 5 | 5 | ||||||||||
Theme Parks | 1,631 | 731 | 182 | 400 | 8 | ||||||||||
Headquarters and Other(a) | 21 | (130 | ) | 114 | 55 | 43 | |||||||||
Eliminations(b) | (64 | ) | 2 | — | — | — | |||||||||
NBCUniversal | 8,295 | 2,091 | 537 | 505 | 63 | ||||||||||
Sky | 4,554 | 899 | 644 | 104 | 188 | ||||||||||
Corporate and Other(c) | 42 | (237 | ) | 32 | 88 | 21 | |||||||||
Eliminations(b) | (648 | ) | (1 | ) | — | — | — | ||||||||
Comcast Consolidated | $ | 26,827 | $ | 8,553 | $ | 3,180 | $ | 2,511 | $ | 608 | |||||
Three Months Ended September 30, 2018 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(d) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Communications | $ | 14,023 | $ | 5,434 | $ | 2,077 | $ | 1,945 | $ | 367 | |||||
NBCUniversal | |||||||||||||||
Cable Networks | 2,850 | 959 | 180 | 11 | 6 | ||||||||||
Broadcast Television | 2,452 | 321 | 32 | 37 | — | ||||||||||
Filmed Entertainment | 1,819 | 214 | 26 | 9 | 6 | ||||||||||
Theme Parks | 1,528 | 725 | 170 | 269 | 23 | ||||||||||
Headquarters and Other(a) | 15 | (161 | ) | 106 | 79 | 43 | |||||||||
Eliminations(b) | (68 | ) | (1 | ) | — | — | — | ||||||||
NBCUniversal | 8,596 | 2,057 | 514 | 405 | 78 | ||||||||||
Corporate and Other(c) | 73 | (188 | ) | 27 | 34 | — | |||||||||
Eliminations(b) | (557 | ) | 10 | — | — | — | |||||||||
Comcast Consolidated | $ | 22,135 | $ | 7,313 | $ | 2,618 | $ | 2,384 | $ | 445 | |||||
Nine Months Ended September 30, 2019 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(d) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Communications | $ | 43,314 | $ | 17,383 | $ | 6,038 | $ | 4,771 | $ | 962 | |||||
NBCUniversal | |||||||||||||||
Cable Networks | 8,586 | 3,418 | 549 | 21 | 10 | ||||||||||
Broadcast Television | 7,099 | 1,259 | 115 | 86 | 9 | ||||||||||
Filmed Entertainment | 4,931 | 742 | 60 | 13 | 16 | ||||||||||
Theme Parks | 4,371 | 1,819 | 514 | 1,172 | 44 | ||||||||||
Headquarters and Other(a) | 60 | (486 | ) | 341 | 139 | 120 | |||||||||
Eliminations(b) | (233 | ) | — | — | — | — | |||||||||
NBCUniversal | 24,814 | 6,752 | 1,579 | 1,431 | 199 | ||||||||||
Sky | 14,179 | 2,334 | 2,058 | 540 | 491 | ||||||||||
Corporate and Other(c) | 206 | (637 | ) | 101 | 124 | 34 | |||||||||
Eliminations(b) | (1,969 | ) | (10 | ) | — | — | — | ||||||||
Comcast Consolidated | $ | 80,544 | $ | 25,822 | $ | 9,776 | $ | 6,866 | $ | 1,686 | |||||
7
Nine Months Ended September 30, 2018 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(d) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Communications | $ | 41,638 | $ | 16,100 | $ | 6,161 | $ | 5,403 | $ | 998 | |||||
NBCUniversal | |||||||||||||||
Cable Networks(e) | 8,881 | 3,389 | 548 | 22 | 15 | ||||||||||
Broadcast Television(e) | 8,340 | 1,245 | 106 | 99 | 75 | ||||||||||
Filmed Entertainment | 5,176 | 555 | 117 | 24 | 20 | ||||||||||
Theme Parks | 4,170 | 1,789 | 492 | 811 | 158 | ||||||||||
Headquarters and Other(a) | 44 | (497 | ) | 314 | 179 | 106 | |||||||||
Eliminations(b)(e) | (245 | ) | (3 | ) | — | — | — | ||||||||
NBCUniversal | 26,366 | 6,478 | 1,577 | 1,135 | 374 | ||||||||||
Corporate and Other(c) | 412 | (566 | ) | 82 | 69 | 3 | |||||||||
Eliminations(b)(e) | (1,755 | ) | (38 | ) | — | — | — | ||||||||
Comcast Consolidated | $ | 66,661 | $ | 21,974 | $ | 7,820 | $ | 6,607 | $ | 1,375 | |||||
(a) | NBCUniversal Headquarters and Other activities include costs associated with overhead, allocations, personnel costs and headquarter initiatives. |
(b) | Included in Eliminations are transactions that our segments enter into with one another. The most common types of transactions are the following: |
• | our Cable Networks segment generates revenue by selling programming to our Cable Communications segment, which represents a substantial majority of the revenue elimination amount |
• | our Broadcast Television segment generates revenue from the fees received under retransmission consent agreements with our Cable Communications segment |
• | our Cable Communications segment generates revenue by selling advertising and by selling the use of satellite feeds to our Cable Networks segment |
• | our Cable Networks and Broadcast Television segments generate revenue by selling advertising to our Cable Communications segment |
• | our Filmed Entertainment and Broadcast Television segments generate revenue by licensing content to our Cable Networks segment; for segment reporting, this revenue is recognized as the programming rights asset for the licensed content is amortized based on third party revenue |
• | our Filmed Entertainment, Cable Networks and Broadcast Television segments generate revenue by licensing content to our Sky segment |
(c) | Corporate and Other activities include costs associated with overhead and personnel, revenue and expenses associated with the operations of Comcast Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center arena in Philadelphia, Pennsylvania, and other business initiatives, such as the development of Peacock, NBCUniversal’s direct-to-consumer streaming service. |
(d) | We use Adjusted EBITDA as the measure of profit or loss for our operating segments. Adjusted EBITDA is defined as net income attributable to Comcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated income before income taxes is presented in the table below. |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Adjusted EBITDA | $ | 8,553 | $ | 7,313 | $ | 25,822 | $ | 21,974 | |||||||
Adjustment for Sky transaction-related costs | (33 | ) | — | (168 | ) | — | |||||||||
Depreciation | (2,124 | ) | (2,038 | ) | (6,561 | ) | (6,070 | ) | |||||||
Amortization | (1,056 | ) | (580 | ) | (3,215 | ) | (1,750 | ) | |||||||
Other operating gains | — | 141 | — | 341 | |||||||||||
Interest expense | (1,167 | ) | (830 | ) | (3,454 | ) | (2,413 | ) | |||||||
Investment and other income (loss), net | (110 | ) | (111 | ) | 511 | 92 | |||||||||
Income before income taxes | $ | 4,063 | $ | 3,895 | $ | 12,935 | $ | 12,174 | |||||||
(e) | The revenue and operating costs and expenses associated with our broadcast of the 2018 PyeongChang Olympics were reported in our Cable Networks and Broadcast Television segments. The revenue and operating costs and expenses associated with our broadcast of the 2018 Super Bowl were reported in our Broadcast Television segment. Included in Eliminations are transactions relating to these events that our Broadcast Television and Cable Networks segments enter into with our other segments. |
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Note 3: Revenue
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Residential: | |||||||||||||||
High-speed internet | $ | 4,721 | $ | 4,321 | $ | 13,961 | $ | 12,740 | |||||||
Video | 5,541 | 5,591 | 16,763 | 16,878 | |||||||||||
Voice | 963 | 982 | 2,935 | 2,982 | |||||||||||
Wireless | 326 | 236 | 795 | 623 | |||||||||||
Business services | 1,971 | 1,803 | 5,795 | 5,290 | |||||||||||
Advertising | 603 | 684 | 1,766 | 1,932 | |||||||||||
Other | 459 | 406 | 1,299 | 1,193 | |||||||||||
Total Cable Communications(a)(b) | 14,584 | 14,023 | 43,314 | 41,638 | |||||||||||
Distribution | 1,681 | 1,655 | 5,123 | 5,166 | |||||||||||
Advertising | 809 | 812 | 2,592 | 2,718 | |||||||||||
Content licensing and other | 281 | 383 | 871 | 997 | |||||||||||
Total Cable Networks | 2,771 | 2,850 | 8,586 | 8,881 | |||||||||||
Advertising | 1,191 | 1,355 | 3,837 | 5,107 | |||||||||||
Content licensing | 447 | 538 | 1,479 | 1,541 | |||||||||||
Distribution and other | 592 | 559 | 1,783 | 1,692 | |||||||||||
Total Broadcast Television | 2,230 | 2,452 | 7,099 | 8,340 | |||||||||||
Theatrical | 549 | 601 | 1,246 | 1,564 | |||||||||||
Content licensing | 737 | 719 | 2,266 | 2,100 | |||||||||||
Home entertainment | 185 | 260 | 681 | 733 | |||||||||||
Other | 235 | 239 | 738 | 779 | |||||||||||
Total Filmed Entertainment | 1,706 | 1,819 | 4,931 | 5,176 | |||||||||||
Total Theme Parks | 1,631 | 1,528 | 4,371 | 4,170 | |||||||||||
Headquarters and Other | 21 | 15 | 60 | 44 | |||||||||||
Eliminations(c) | (64 | ) | (68 | ) | (233 | ) | (245 | ) | |||||||
Total NBCUniversal | 8,295 | 8,596 | 24,814 | 26,366 | |||||||||||
Direct-to-consumer | 3,793 | — | 11,516 | — | |||||||||||
Content | 315 | — | 1,061 | — | |||||||||||
Advertising | 446 | — | 1,602 | — | |||||||||||
Total Sky | 4,554 | — | 14,179 | — | |||||||||||
Corporate and Other(b) | 42 | 73 | 206 | 412 | |||||||||||
Eliminations(c) | (648 | ) | (557 | ) | (1,969 | ) | (1,755 | ) | |||||||
Total revenue | $ | 26,827 | $ | 22,135 | $ | 80,544 | $ | 66,661 | |||||||
(a) | For both the three and nine months ended September 30, 2019, 2.6% of Cable Communications segment revenue was derived from franchise and other regulatory fees. For the three and nine months ended September 30, 2018, 2.6% and 2.7%, respectively, of Cable Communications segment revenue was derived from franchise and other regulatory fees. |
(b) | Comcast Cable’s wireless phone service is now presented in the Cable Communications segment. Results were previously presented in Corporate and Other. We recognize revenue from our wireless phone service as the services are provided, similar to how we recognize revenue for other residential cable services. We recognize revenue from the sale of handsets at the point of sale. |
(c) | Included in Eliminations are transactions that our segments enter into with one another. See Note 2 for a description of these transactions. |
9
We operate primarily in the United States but also in select international markets. The table below summarizes revenue by geographic location.
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
United States | $ | 20,398 | $ | 20,244 | $ | 61,394 | $ | 61,060 | |||||||
Europe | 5,211 | 825 | 15,878 | 2,345 | |||||||||||
Other | 1,218 | 1,066 | 3,272 | 3,256 | |||||||||||
Total revenue | $ | 26,827 | $ | 22,135 | $ | 80,544 | $ | 66,661 | |||||||
No single customer accounted for a significant amount of revenue in any period presented.
Condensed Consolidated Balance Sheet
The following tables summarize our accounts receivable and other balances that are not separately presented in our condensed consolidated balance sheet that relate to the recognition of revenue and collection of the related cash, as well as deferred costs associated with our contracts with customers.
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Receivables, gross | $ | 11,159 | $ | 11,456 | |||
Less: Allowance for doubtful accounts | 475 | 352 | |||||
Receivables, net | $ | 10,684 | $ | 11,104 | |||
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Noncurrent receivables, net (included in other noncurrent assets, net) | $ | 1,261 | $ | 1,399 | |||
Contract acquisition and fulfillment costs (included in other noncurrent assets, net) | $ | 1,055 | $ | 991 | |||
Noncurrent deferred revenue (included in other noncurrent liabilities) | $ | 663 | $ | 650 | |||
Note 4: Earnings Per Share
Computation of Diluted EPS
Three Months Ended September 30 | |||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||
(in millions, except per share data) | Net Income Attributable to Comcast Corporation | Shares | Per Share Amount | Net Income Attributable to Comcast Corporation | Shares | Per Share Amount | |||||||||||||||
Basic EPS attributable to Comcast Corporation shareholders | $ | 3,217 | 4,551 | $ | 0.71 | $ | 2,886 | 4,564 | $ | 0.63 | |||||||||||
Effect of dilutive securities: | |||||||||||||||||||||
Assumed exercise or issuance of shares relating to stock plans | 68 | 55 | |||||||||||||||||||
Diluted EPS attributable to Comcast Corporation shareholders | $ | 3,217 | 4,619 | $ | 0.70 | $ | 2,886 | 4,619 | $ | 0.62 | |||||||||||
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Nine Months Ended September 30 | |||||||||||||||||||||
2019 | 2018 | ||||||||||||||||||||
(in millions, except per share data) | Net Income Attributable to Comcast Corporation | Shares | Per Share Amount | Net Income Attributable to Comcast Corporation | Shares | Per Share Amount | |||||||||||||||
Basic EPS attributable to Comcast Corporation shareholders | $ | 9,895 | 4,544 | $ | 2.18 | $ | 9,220 | 4,599 | $ | 2.00 | |||||||||||
Effect of dilutive securities: | |||||||||||||||||||||
Assumed exercise or issuance of shares relating to stock plans | 62 | 56 | |||||||||||||||||||
Diluted EPS attributable to Comcast Corporation shareholders | $ | 9,895 | 4,606 | $ | 2.15 | $ | 9,220 | 4,655 | $ | 1.98 | |||||||||||
Diluted earnings per common share attributable to Comcast Corporation shareholders (“diluted EPS”) considers the impact of potentially dilutive securities using the treasury stock method. Our potentially dilutive securities include potential common shares related to our stock options and our restricted share units (“RSUs”). Diluted EPS excludes the impact of potential common shares related to our stock options in periods in which the combination of the option exercise price and the associated unrecognized compensation expense is greater than the average market price of our common stock. The amount of potential common shares related to our share-based compensation plans that were excluded from diluted EPS because their effect would have been antidilutive was not material for the three and nine months ended September 30, 2019 or 2018.
Note 5: Long-Term Debt
As of September 30, 2019, our debt had a carrying value of $100.9 billion and an estimated fair value of $114.1 billion. The estimated fair value of our publicly traded debt was primarily based on Level 1 inputs that use quoted market values for the debt. The estimated fair value of debt for which there are no quoted market prices was based on Level 2 inputs that use interest rates available to us for debt with similar terms and remaining maturities.
Debt Borrowings and Repayments
For the nine months ended September 30, 2019, we had borrowings of $516 million primarily related to the Universal Beijing Resort term loans.
For the nine months ended September 30, 2019, we made repayments of $10.0 billion, including the early redemptions of $3.4 billion of senior notes due 2020 and the partial repayment of a term loan, both of which were funded using proceeds from our collateralized obligation (see Note 9).
Guarantee Structure
Comcast, Comcast Cable and NBCUniversal fully and unconditionally guarantee each other’s debt securities, including the Comcast revolving credit facility. As of September 30, 2019, the principal amount of debt securities outstanding within the cross-guarantee structure totaled $86.4 billion.
Comcast and Comcast Cable fully and unconditionally guarantee NBCUniversal Enterprise’s debt securities, including its revolving credit facility. As of September 30, 2019, the principal amount of debt securities guaranteed by Comcast and Comcast Cable totaled $1.5 billion. NBCUniversal does not guarantee NBCUniversal Enterprise’s debt securities.
Comcast fully and unconditionally guarantees Universal Studios Japan’s yen-denominated ¥379 billion (approximately $3.5 billion using exchange rates as of September 30, 2019) term loans with a final maturity of March 2022. None of Comcast, Comcast Cable nor NBCUniversal guarantee the ¥7.4 billion RMB (approximately $1.0 billion using exchange rates as of September 30, 2019) principal amount of Universal Beijing Resort term loans outstanding.
In May 2019, Comcast provided a full and unconditional guarantee of Sky’s debt (approximately $9.0 billion using exchange rates as of September 30, 2019) in connection with Sky’s noteholders consenting to (i) the transfer of the listing of three series of notes from the Main Market of the London Stock Exchange to the Professional Securities Market of the London Stock Exchange and (ii) amending certain terms of the Sky notes.
11
Note 6: Significant Transactions
Sky Transaction
On October 9, 2018, in connection with our offer to acquire the share capital of Sky, we acquired a controlling interest in Sky through a series of purchases of Sky shares at our offer price of £17.28 per share. In the fourth quarter of 2018, we acquired the remaining Sky shares and now own 100% of Sky’s equity interests. Total cash consideration was £30.2 billion (approximately $39.4 billion using the exchange rates on the purchase dates). We financed the acquisition through a combination of new fixed and floating rate notes, issuance of term loans and cash on hand. Sky is one of Europe’s leading entertainment companies, which primarily includes a direct-to-consumer business, providing video, high-speed internet, voice and wireless phone services, and a content business, operating entertainment networks, the Sky News broadcast network and Sky Sports networks.
Allocation of Purchase Price
We have applied acquisition accounting to Sky. Sky’s results of operations are included in our consolidated results of operations since the acquisition date and are reported in our Sky segment. The net assets of Sky were recorded at their estimated fair value using primarily Level 3 inputs. In valuing acquired assets and liabilities, fair value estimates are based on, but are not limited to, future expected cash flows, market rate assumptions for contractual obligations and appropriate discount rates.
During the first quarter of 2019, we revised our estimates of fair value, primarily related to intangible assets, property and equipment, and investments (included below in other noncurrent assets and (liabilities), net), and recorded corresponding adjustments to deferred taxes. We also recorded an additional valuation allowance of approximately $1.2 billion associated with our assessment of the realization of Sky’s deferred tax assets, primarily related to net operating losses. These changes resulted in an increase in goodwill of approximately $1.4 billion and an adjustment in the first quarter of 2019 related to the fourth quarter of 2018 that resulted in an increase to depreciation and amortization expense of $53 million.
The table below presents the allocation of the all-cash purchase price of £30.2 billion, or $39.4 billion, to the assets and liabilities of Sky as a result of the transaction.
Allocation of Purchase Price | |||
(in millions) | |||
Consideration transferred | $ | 39,387 | |
Allocation of purchase price | |||
Cash | $ | 1,283 | |
Accounts receivable and other current assets | 2,359 | ||
Film and television costs | 2,512 | ||
Property and equipment | 4,127 | ||
Intangible assets | 19,539 | ||
Accounts payable, accrued liabilities and other current liabilities | (5,885 | ) | |
Long-term debt | (11,468 | ) | |
Deferred tax assets (liabilities), net | (2,974 | ) | |
Other noncurrent assets and (liabilities), net | (1,398 | ) | |
Fair value of identifiable net assets acquired | 8,095 | ||
Goodwill | $ | 31,292 | |
Property and Equipment
Property and equipment includes customer premise equipment with a carrying value of $1.4 billion, which have original estimated useful lives of 5 to 7 years. The remaining property and equipment includes network assets, real estate, and other machinery and equipment.
Intangible Assets
Finite-lived intangible assets primarily consist of customer relationships with a carrying amount of $9.5 billion and developed technology and software with a carrying amount of $4.3 billion, with original estimated useful lives between 6 and 19 years and 4 and 9 years, respectively. Indefinite-lived assets consist of trade names with a carrying amount of $5.8 billion.
12
Goodwill
Goodwill consists primarily of intangible assets that do not qualify for separate recognition, including increased footprint, assembled workforce, noncontractual relationships and agreements. The acquired goodwill is not expected to be deductible for tax purposes.
Acquisition-Related Costs
As a result of the Sky transaction, we incurred expenses in 2018 related to legal, accounting, valuation and other professional services, which are reflected in other operating and administrative expenses. We also incurred certain financing costs associated with our borrowings, which are reflected in interest expense. The table below presents the amounts related to these expenses included in our condensed consolidated statement of income.
(in millions) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | ||||
Other operating and administrative expenses | $ | 8 | $ | 29 | ||
Interest expense | $ | 34 | $ | 45 | ||
Unaudited Pro Forma Information
The following unaudited pro forma information has been presented as if the Sky transaction occurred on January 1, 2017. This information is based on historical results of operations, adjusted for allocation of purchase price and other acquisition accounting adjustments, and is not necessarily indicative of what the results would have been had we operated the business since January 1, 2017. For pro forma purposes, 2018 earnings were adjusted to exclude the acquisition-related costs. No pro forma adjustments have been made for cost savings or synergies that have been or may be achieved by the combined businesses.
(in millions, except per share data) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | ||||
Revenue | $ | 26,824 | $ | 81,239 | ||
Net income attributable to Comcast Corporation | $ | 3,448 | $ | 9,388 | ||
Basic earnings per common share attributable to Comcast Corporation shareholders | $ | 0.75 | $ | 2.04 | ||
Diluted earnings per common share attributable to Comcast Corporation shareholders | $ | 0.74 | $ | 2.01 | ||
Universal Beijing Resort
We entered into an agreement with a consortium of Chinese state-owned companies to build and operate a Universal theme park and resort in Beijing, China (“Universal Beijing Resort”). We own a 30% interest in Universal Beijing Resort and the construction is being funded through a combination of debt financing and equity contributions from the investors in accordance with their equity interests. The debt financing, which is being provided by a syndicate of Chinese financial institutions, contains certain financial and operating covenants and a maximum borrowing limit of ¥26.6 billion RMB (approximately $4 billion). The debt financing is secured by the assets of Universal Beijing Resort and the equity interests of the investors. As of September 30, 2019, Universal Beijing Resort had $1 billion principal amount of term loans outstanding under the debt financing agreements.
We have concluded that Universal Beijing Resort is a variable interest entity based on its governance structure, and we consolidate it because we have the power to direct activities that most significantly impact its economic performance. There are no liquidity arrangements, guarantees or other financial commitments between us and Universal Beijing Resort, and therefore our maximum risk of financial loss is our 30% interest. Universal Beijing Resort’s results of operations are reported in our Theme Parks segment. Our condensed consolidated statement of cash flows includes the costs of construction and related borrowings in the “construction of Universal Beijing Resort” and “proceeds from borrowings” captions, respectively, and equity contributions from our investing partner are included in other financing activities.
In March 2018, Universal Beijing Resort received initial equity investments through a combination of cash and noncash contributions from the investors. As of September 30, 2019, our condensed consolidated balance sheet included assets, primarily property and equipment, and liabilities, including the term loans, of Universal Beijing Resort totaling $2.4 billion and $1.7 billion, respectively.
13
Note 7: Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to leases. The most significant change in the updated accounting guidance requires lessees to recognize lease assets and liabilities on the balance sheet for all operating leases with the exception of short-term leases. The standard also expands the disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. For a lessee, the recognition, measurement and presentation of expenses and cash flows arising from a lease did not significantly change from previous guidance. We adopted the updated guidance on January 1, 2019 on a prospective basis and as a result, prior period amounts were not adjusted to reflect the impacts of the updated guidance. In addition, as permitted under the transition guidance within the new standard, prior scoping and classification conclusions were carried forward for leases existing as of the adoption date.
Upon adoption, we recorded $4.2 billion and $4.8 billion for operating lease assets and liabilities, respectively, which includes the impact of fair value adjustments, prepaid and deferred rent and lease incentives. The adoption of the updated accounting guidance did not significantly impact our recognition of finance leases, which were previously described as capital leases. As of the date of adoption, our liabilities for finance leases were $787 million, including $229 million of additional contracts determined to be leases in connection with the Sky transaction, which were recorded in long-term debt, and the related assets were recorded in property and equipment, net. Our finance leases were not considered material for further disclosure. The adoption of the new accounting guidance did not have a material impact on our consolidated results of operations or cash flows. See Note 12 for further information.
Film and Television Costs
In March 2019, the FASB updated the accounting guidance related to film and television costs. The updated guidance aligns the accounting for production costs of episodic television series with those of films, allowing for costs to be capitalized in excess of amounts of revenue contracted for each episode. The updated guidance also updates certain presentation and disclosure requirements for capitalized film and television costs, and requires impairment testing to be performed at a group level for capitalized film and television costs when the content is predominantly monetized with other owned or licensed content. The updated guidance is effective for us as of January 1, 2020 and early adoption is permitted. We are currently in the process of determining the impact that the updated accounting guidance will have on our consolidated financial statements.
Note 8: Film and Television Costs
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Film Costs: | |||||||
Released, less amortization | $ | 1,615 | $ | 1,600 | |||
Completed, not released | 124 | 144 | |||||
In production and in development | 1,282 | 1,063 | |||||
3,021 | 2,807 | ||||||
Television Costs: | |||||||
Released, less amortization | 2,514 | 2,289 | |||||
In production and in development | 1,228 | 953 | |||||
3,742 | 3,242 | ||||||
Programming rights, less amortization | 5,341 | 5,534 | |||||
12,104 | 11,583 | ||||||
Less: Current portion of programming rights | 3,457 | 3,746 | |||||
Film and television costs | $ | 8,647 | $ | 7,837 | |||
14
Note 9: Investments
Investment and Other Income (Loss), Net
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Equity in net income (losses) of investees, net | $ | (355 | ) | $ | (76 | ) | $ | (295 | ) | $ | (56 | ) | |||
Realized and unrealized gains (losses) on equity securities, net | 174 | (38 | ) | 582 | (50 | ) | |||||||||
Other income (loss), net | 71 | 3 | 224 | 198 | |||||||||||
Investment and other income (loss), net | $ | (110 | ) | $ | (111 | ) | $ | 511 | $ | 92 | |||||
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Equity method | $ | 5,363 | $ | 4,035 | |||
Marketable equity securities | 862 | 341 | |||||
Nonmarketable equity securities | 1,933 | 1,805 | |||||
Other investments | 1,841 | 1,796 | |||||
Total investments | 9,999 | 7,977 | |||||
Less: Current investments | 1,710 | 94 | |||||
Less: Investment securing collateralized obligation | 816 | — | |||||
Noncurrent investments | $ | 7,473 | $ | 7,883 | |||
Equity Method
Atairos
Atairos follows investment company accounting and records its investments at their fair values each reporting period with the net gains or losses reflected in its statement of operations. We recognize our share of these gains and losses in equity in net income (losses) of investees, net. For the three and nine months ended September 30, 2019, we recognized losses of $262 million and income of $6 million, respectively. For the three and nine months ended September 30, 2018, we recognized income of $38 million and $224 million, respectively. For the nine months ended September 30, 2019 and 2018, we made cash capital contributions totaling $475 million and $133 million, respectively, to Atairos. As of September 30, 2019 and December 31, 2018, our investment was $3.2 billion and $2.7 billion, respectively.
In April 2018, we sold a controlling interest in our arena management-related businesses to Atairos and received as consideration additional equity interests in Atairos. In connection with the sale of the businesses, we recognized a pre-tax gain of $200 million in other operating gains.
Hulu and Collateralized Obligation
In May 2019, we entered into a series of agreements (the “Hulu Transaction”) with The Walt Disney Company and certain of its subsidiaries (“Disney”), whereby we relinquished our board seats and substantially all voting rights associated with our investment in Hulu, LLC (“Hulu”), and Disney assumed full operational control. We also acquired our proportionate share of the approximate 10% interest in Hulu previously held by AT&T Inc. (“AT&T”) for approximately $477 million, increasing our ownership interest to approximately 33% from approximately 30%.
Following the Hulu Transaction, future capital calls are limited to $1.5 billion in the aggregate each year, with any excess funding requirements funded with member loans. We have the right, but not the obligation, to fund our proportionate share of these capital calls, and if we elect not to fund our share of future equity capital calls, our ownership interest will be diluted, subject to an ownership floor of 21%. The Hulu Transaction agreements include put and call provisions regarding our ownership interest in Hulu, pursuant to which, as early as January 2024, we can require Disney to buy, and Disney can require us to sell our interest, in either case, for fair value at that future time subject to a minimum equity value of $27.5 billion for 100% of the equity of Hulu. The minimum total equity value and ownership floor guarantee minimum proceeds of approximately $5.8 billion upon exercise of the put or call.
In connection with the Hulu Transaction, we agreed to extend certain licenses of NBCUniversal content until late 2024. We can terminate most of our content license agreements with Hulu beginning in 2022, and beginning in 2020, we have the right to modify certain content licenses that are currently exclusive to Hulu, so that we can exhibit the content on our platforms in return for reducing the license fee.
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In August 2019, we entered into a financing arrangement with a syndicate of banks whereby we received proceeds of $5.2 billion under a term loan facility due March 2024. The principal amount of the term loan is secured by the proceeds guaranteed by Disney under the put/call provisions related to our investment in Hulu. The proceeds from the put/call provisions are available only for the repayment of the term loan and are not available to us unless and until the bank lenders are fully paid under the term loan provisions. The bank lenders have no rights to proceeds from the put/call provisions in excess of amounts owed under the term loan. As a result of this transaction, we now present our investment in Hulu and the term loan separately in our condensed consolidated balance sheet in the captions “investment securing collateralized obligation” and “collateralized obligation”, respectively. The recorded value of our investment reflects our historical cost in applying the equity method, and as a result, is less than its fair value. As of September 30, 2019, our collateralized obligation had a carrying value of $5.2 billion and an estimated fair value of $5.2 billion. The estimated fair value was based on Level 2 inputs that use interest rates for debt with similar terms and remaining maturities.
We account for our investment using the equity method. For the three and nine months ended September 30, 2019, we recognized losses of $101 million and $351 million, respectively, in equity in net income (losses) of investees, net. For the three and nine months ended September 30, 2018, we recognized losses of $132 million and $370 million, respectively. For the nine months ended September 30, 2019 and 2018, we made cash capital contributions totaling $903 million, inclusive of the funding for the acquisition of the AT&T interest, and $341 million, respectively, to Hulu. As of September 30, 2019 and December 31, 2018, our investment was $816 million and $248 million, respectively.
In August 2016, Time Warner Inc., which was acquired by AT&T in 2018, acquired a 10% interest in Hulu, diluting our interest at that time from approximately 33% to approximately 30%. Given the contingent nature of put and call options related to that interest, we recorded a deferred gain as a result of the dilution. In the first quarter of 2019, the put and call options expired unexercised and we recognized the previously deferred gain of $159 million in other income (loss), net.
The Weather Channel
In March 2018, we sold our investment in The Weather Channel cable network and recognized a pretax gain of $64 million in other income (loss), net.
Marketable Equity Securities
Snap
For the three and nine months ended September 30, 2019, we recognized unrealized gains of $45 million and $303 million, respectively, in realized and unrealized gains (losses) on equity securities, net. For the three and nine months ended September 30, 2018, we recognized unrealized losses of $135 million and $180 million, respectively. As of September 30, 2019 and December 31, 2018, our investment was $465 million and $162 million, respectively.
Peloton
In September 2019, as a result of Peloton’s initial public offering, we recognized unrealized gains of $150 million related to our investment in realized and unrealized gains (losses) on equity securities, net. Following the initial public offering, we now present our investment in marketable equity securities, which was previously presented in non-marketable equity securities. As of September 30, 2019 and December 31, 2018, our investment was $260 million and $110 million, respectively.
Other Investments
AirTouch
We hold two series of preferred stock of Verizon Americas, Inc., formerly known as AirTouch Communications, Inc. (“AirTouch”), a subsidiary of Verizon Communications Inc., which are redeemable in April 2020. As of both September 30, 2019 and December 31, 2018, our investment in AirTouch was $1.6 billion. We account for our investment in AirTouch as a held to maturity investment using the cost method. As of September 30, 2019, the estimated fair value of the AirTouch preferred stock and the estimated fair value of the associated liability related to the redeemable subsidiary preferred shares issued by one of our consolidated subsidiaries were each $1.7 billion. The estimated fair values were based on Level 2 inputs that use pricing models whose inputs are derived primarily from or corroborated by observable market data through correlation or other means for substantially the full term of the financial instrument.
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Note 10: Goodwill
NBCUniversal | ||||||||||||||||||||||||
(in millions) | Cable Communications | Cable Networks | Broadcast Television | Filmed Entertainment | Theme Parks | Sky | Corporate and Other | Total | ||||||||||||||||
Balance, December 31, 2018 | $ | 12,784 | $ | 13,407 | $ | 843 | $ | 3,184 | $ | 6,684 | $ | 29,250 | $ | 2 | $ | 66,154 | ||||||||
Acquisitions | 131 | — | 13 | — | — | 10 | — | 154 | ||||||||||||||||
Dispositions | — | — | — | — | — | (12 | ) | — | (12 | ) | ||||||||||||||
Adjustments(a) | 2,166 | 490 | 199 | 138 | — | (1,555 | ) | 2 | 1,440 | |||||||||||||||
Foreign currency translation | (116 | ) | (34 | ) | (11 | ) | (11 | ) | 106 | (757 | ) | — | (823 | ) | ||||||||||
Balance, September 30, 2019 | $ | 14,965 | $ | 13,863 | $ | 1,044 | $ | 3,311 | $ | 6,790 | $ | 26,936 | $ | 4 | $ | 66,913 | ||||||||
(a) | Adjustments during the nine months ended September 30, 2019 primarily included 1) measurement period adjustments resulting from finalization of acquisition accounting for Sky and 2) the final assignment of goodwill resulting from the Sky transaction to our reporting units. |
We performed our annual impairment testing of goodwill and cable franchise rights and other indefinite-lived intangible assets as of July 1, 2019 and no impairment charge was required.
Note 11: Supplemental Financial Information
Share-Based Compensation
Our share-based compensation plans consist primarily of awards of RSUs and stock options to certain employees and directors as part of our approach to long-term incentive compensation. Additionally, through our employee stock purchase plans, employees are able to purchase shares of our common stock at a discount through payroll deductions.
In March 2019, we granted 12.4 million RSUs and 41.9 million stock options related to our annual management awards. The weighted-average fair values associated with these grants were $39.88 per RSU and $7.91 per stock option.
Recognized Share-Based Compensation Expense
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Restricted share units | $ | 143 | $ | 94 | $ | 437 | $ | 279 | |||||||
Stock options | 57 | 50 | 176 | 155 | |||||||||||
Employee stock purchase plans | 8 | 7 | 23 | 24 | |||||||||||
Total | $ | 208 | $ | 151 | $ | 636 | $ | 458 | |||||||
As of September 30, 2019, we had unrecognized pretax compensation expense of $1.2 billion and $529 million related to nonvested RSUs and nonvested stock options, respectively.
Cash Payments for Interest and Income Taxes
Nine Months Ended September 30 | |||||||
(in millions) | 2019 | 2018 | |||||
Interest | $ | 3,167 | $ | 2,240 | |||
Income taxes | $ | 2,490 | $ | 1,533 | |||
Noncash Activities
During the nine months ended September 30, 2019:
• | we acquired $2.0 billion of property and equipment and intangible assets that were accrued but unpaid |
• | we recorded a liability of $955 million for a quarterly cash dividend of $0.21 per common share to be paid in October 2019 |
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Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheet to the total of the amounts reported in our condensed consolidated statement of cash flows.
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 3,507 | $ | 3,814 | |||
Restricted cash included in other current assets | 47 | 46 | |||||
Restricted cash included in other noncurrent assets, net | 48 | 49 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 3,602 | $ | 3,909 | |||
Accumulated Other Comprehensive Income (Loss)
(in millions) | September 30, 2019 | September 30, 2018 | |||||
Unrealized gains (losses) on marketable securities | $ | 7 | $ | 2 | |||
Deferred gains (losses) on cash flow hedges | 162 | 28 | |||||
Unrecognized gains (losses) on employee benefit obligations | 301 | 294 | |||||
Cumulative translation adjustments | (1,629 | ) | 50 | ||||
Accumulated other comprehensive income (loss), net of deferred taxes | $ | (1,159 | ) | $ | 374 | ||
Note 12: Commitments and Contingencies
Leases
Our leases consist primarily of real estate, vehicles and other equipment. We determine if an arrangement is a lease at inception. Lease assets and liabilities are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. We generally utilize our incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments. The lease asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Lease assets and liabilities are not recorded for leases with an initial term of one year or less. Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our condensed consolidated statement of income for the three and nine months ended September 30, 2019 were $268 million and $806 million, respectively. These amounts do not include lease costs associated with production activities or other amounts capitalized in our condensed consolidated balance sheet, which are not material.
The table below summarizes the operating lease assets and liabilities recorded in our condensed consolidated balance sheet.
Condensed Consolidated Balance Sheet
(in millions) | September 30, 2019 | ||
Other noncurrent assets, net | $ | 4,011 | |
Accrued expenses and other current liabilities | $ | 696 | |
Other noncurrent liabilities | $ | 3,863 | |
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The table below summarizes our future minimum rental commitments for operating leases as of September 30, 2019 applying the new accounting guidance.
(in millions) | September 30, 2019 | ||
Remaining three months of 2019 | $ | 182 | |
2020 | 880 | ||
2021 | 763 | ||
2022 | 633 | ||
2023 | 530 | ||
Thereafter | 2,606 | ||
Total future minimum lease payments | 5,594 | ||
Less: imputed interest | 1,035 | ||
Total liability | $ | 4,559 | |
The weighted average remaining lease term for operating leases and the weighted average discount rate used to calculate our operating lease liabilities as of September 30, 2019 were 10 years and 3.78%, respectively.
For the nine months ended September 30, 2019, cash payments for operating leases recorded in the condensed consolidated balance sheet were $700 million. Leases that have not yet commenced and lease assets and liabilities associated with leases entered into during the period were not material.
The tables below summarize our future minimum rental commitments for operating leases as of December 31, 2018 and rent expense for operating leases for the three and nine months ended September 30, 2018 using the accounting guidance in effect at that time. These amounts have been updated to include $804 million of future cash payments related to additional contracts determined to be operating leases in connection with the Sky transaction.
(in millions) | December 31, 2018 | ||||||
2019 | $ | 891 | |||||
2020 | $ | 824 | |||||
2021 | $ | 722 | |||||
2022 | $ | 592 | |||||
2023 | $ | 513 | |||||
Thereafter | $ | 2,608 | |||||
(in millions) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||
Rental expense | $ | 178 | $ | 548 | |||
Redeemable Subsidiary Preferred Stock
As of September 30, 2019, the fair value of the NBCUniversal Enterprise redeemable subsidiary preferred stock was $743 million. The estimated fair value is based on Level 2 inputs that use pricing models whose inputs are derived primarily from or corroborated by observable market data through correlation or other means for substantially the full term of the financial instrument.
Contingencies
We are a defendant in several lawsuits claiming infringement of various patents relating to various aspects of our businesses. In certain of these cases, other industry participants are also defendants, and also in certain of these cases, we expect that any potential liability would be in part or in whole the responsibility of our equipment and technology vendors under applicable contractual indemnification provisions. In addition, we are subject to other legal proceedings and claims that arise in the ordinary course of our business. While the amount of ultimate liability with respect to such actions is not expected to materially affect our results of operations, cash flows or financial position, any litigation resulting from any such legal proceedings or claims could be time-consuming and injure our reputation.
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Note 13: Condensed Consolidating Financial Information
Comcast (“Comcast Parent”), Comcast Cable Communications, LLC (“CCCL Parent”) and NBCUniversal (“NBCUniversal Media Parent”) have fully and unconditionally guaranteed each other’s debt. See Note 5 for additional information on the cross-guarantee structure.
Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2019
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Revenue: | |||||||||||||||||||||
Service revenue | $ | — | $ | — | $ | — | $ | — | $ | 26,827 | $ | — | $ | 26,827 | |||||||
Management fee revenue | 326 | — | 319 | — | — | (645 | ) | — | |||||||||||||
Total revenue | 326 | — | 319 | — | 26,827 | (645 | ) | 26,827 | |||||||||||||
Costs and Expenses: | |||||||||||||||||||||
Programming and production | — | — | — | — | 8,316 | — | 8,316 | ||||||||||||||
Other operating and administrative | 209 | — | 319 | 230 | 7,977 | (645 | ) | 8,090 | |||||||||||||
Advertising, marketing and promotion | — | — | — | — | 1,901 | — | 1,901 | ||||||||||||||
Depreciation | 14 | — | — | — | 2,110 | — | 2,124 | ||||||||||||||
Amortization | 1 | — | — | — | 1,055 | — | 1,056 | ||||||||||||||
Total costs and expenses | 224 | — | 319 | 230 | 21,359 | (645 | ) | 21,487 | |||||||||||||
Operating income (loss) | 102 | — | — | (230 | ) | 5,468 | — | 5,340 | |||||||||||||
Interest expense | (873 | ) | (3 | ) | (47 | ) | (140 | ) | (104 | ) | — | (1,167 | ) | ||||||||
Investment and other income (loss), net | 3,776 | 3,729 | 3,620 | 1,632 | 1,390 | (14,257 | ) | (110 | ) | ||||||||||||
Income (loss) before income taxes | 3,005 | 3,726 | 3,573 | 1,262 | 6,754 | (14,257 | ) | 4,063 | |||||||||||||
Income tax (expense) benefit | 212 | (2 | ) | 10 | (6 | ) | (989 | ) | — | (775 | ) | ||||||||||
Net income (loss) | 3,217 | 3,724 | 3,583 | 1,256 | 5,765 | (14,257 | ) | 3,288 | |||||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 71 | — | 71 | ||||||||||||||
Net income (loss) attributable to Comcast Corporation | $ | 3,217 | $ | 3,724 | $ | 3,583 | $ | 1,256 | $ | 5,694 | $ | (14,257 | ) | $ | 3,217 | ||||||
Comprehensive income (loss) attributable to Comcast Corporation | $ | 2,120 | $ | 3,722 | $ | 3,584 | $ | 1,244 | $ | 4,397 | $ | (12,947 | ) | $ | 2,120 | ||||||
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Condensed Consolidating Statement of Income
For the Three Months Ended September 30, 2018
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Revenue: | |||||||||||||||||||||
Service revenue | $ | — | $ | — | $ | — | $ | — | $ | 22,135 | $ | — | $ | 22,135 | |||||||
Management fee revenue | 299 | — | 294 | — | — | (593 | ) | — | |||||||||||||
Total revenue | 299 | — | 294 | — | 22,135 | (593 | ) | 22,135 | |||||||||||||
Costs and Expenses: | |||||||||||||||||||||
Programming and production | — | — | — | — | 6,711 | — | 6,711 | ||||||||||||||
Other operating and administrative | 208 | — | 294 | 230 | 6,305 | (593 | ) | 6,444 | |||||||||||||
Advertising, marketing and promotion | — | — | — | — | 1,667 | — | 1,667 | ||||||||||||||
Depreciation | 12 | — | — | — | 2,026 | — | 2,038 | ||||||||||||||
Amortization | 1 | — | — | — | 579 | — | 580 | ||||||||||||||
Other operating gains | — | — | — | — | (141 | ) | — | (141 | ) | ||||||||||||
Total costs and expenses | 221 | — | 294 | 230 | 17,147 | (593 | ) | 17,299 | |||||||||||||
Operating income (loss) | 78 | — | — | (230 | ) | 4,988 | — | 4,836 | |||||||||||||
Interest expense | (600 | ) | (3 | ) | (48 | ) | (113 | ) | (66 | ) | — | (830 | ) | ||||||||
Investment and other income (loss), net | 3,299 | 3,380 | 3,007 | 1,576 | 1,065 | (12,438 | ) | (111 | ) | ||||||||||||
Income (loss) before income taxes | 2,777 | 3,377 | 2,959 | 1,233 | 5,987 | (12,438 | ) | 3,895 | |||||||||||||
Income tax (expense) benefit | 109 | (1 | ) | 10 | (2 | ) | (1,115 | ) | — | (999 | ) | ||||||||||
Net income (loss) | 2,886 | 3,376 | 2,969 | 1,231 | 4,872 | (12,438 | ) | 2,896 | |||||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 10 | — | 10 | ||||||||||||||
Net income (loss) attributable to Comcast Corporation | $ | 2,886 | $ | 3,376 | $ | 2,969 | $ | 1,231 | $ | 4,862 | $ | (12,438 | ) | $ | 2,886 | ||||||
Comprehensive income (loss) attributable to Comcast Corporation | $ | 2,799 | $ | 3,349 | $ | 2,974 | $ | 1,112 | $ | 4,663 | $ | (12,098 | ) | $ | 2,799 | ||||||
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Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2019
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Revenue: | |||||||||||||||||||||
Service revenue | $ | — | $ | — | $ | — | $ | — | $ | 80,544 | $ | — | $ | 80,544 | |||||||
Management fee revenue | 940 | — | 921 | — | — | (1,861 | ) | — | |||||||||||||
Total revenue | 940 | — | 921 | — | 80,544 | (1,861 | ) | 80,544 | |||||||||||||
Costs and Expenses: | |||||||||||||||||||||
Programming and production | — | — | — | — | 25,140 | — | 25,140 | ||||||||||||||
Other operating and administrative | 575 | — | 921 | 726 | 23,715 | (1,861 | ) | 24,076 | |||||||||||||
Advertising, marketing and promotion | — | — | — | — | 5,674 | — | 5,674 | ||||||||||||||
Depreciation | 44 | — | — | — | 6,517 | — | 6,561 | ||||||||||||||
Amortization | 4 | — | — | — | 3,211 | — | 3,215 | ||||||||||||||
Total costs and expenses | 623 | — | 921 | 726 | 64,257 | (1,861 | ) | 64,666 | |||||||||||||
Operating income (loss) | 317 | — | — | (726 | ) | 16,287 | — | 15,878 | |||||||||||||
Interest expense | (2,646 | ) | (9 | ) | (143 | ) | (377 | ) | (279 | ) | — | (3,454 | ) | ||||||||
Investment and other income (loss), net | 11,683 | 11,602 | 10,310 | 5,731 | 5,287 | (44,102 | ) | 511 | |||||||||||||
Income (loss) before income taxes | 9,354 | 11,593 | 10,167 | 4,628 | 21,295 | (44,102 | ) | 12,935 | |||||||||||||
Income tax (expense) benefit | 541 | (9 | ) | 30 | (17 | ) | (3,357 | ) | — | (2,812 | ) | ||||||||||
Net income (loss) | 9,895 | 11,584 | 10,197 | 4,611 | 17,938 | (44,102 | ) | 10,123 | |||||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 228 | — | 228 | ||||||||||||||
Net income (loss) attributable to Comcast Corporation | $ | 9,895 | $ | 11,584 | $ | 10,197 | $ | 4,611 | $ | 17,710 | $ | (44,102 | ) | $ | 9,895 | ||||||
Comprehensive income (loss) attributable to Comcast Corporation | $ | 9,104 | $ | 11,600 | $ | 10,201 | $ | 4,640 | $ | 16,857 | $ | (43,298 | ) | $ | 9,104 | ||||||
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Condensed Consolidating Statement of Income
For the Nine Months Ended September 30, 2018
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Revenue: | |||||||||||||||||||||
Service revenue | $ | — | $ | — | $ | — | $ | — | $ | 66,661 | $ | — | $ | 66,661 | |||||||
Management fee revenue | 889 | — | 873 | — | — | (1,762 | ) | — | |||||||||||||
Total revenue | 889 | — | 873 | — | 66,661 | (1,762 | ) | 66,661 | |||||||||||||
Costs and Expenses: | |||||||||||||||||||||
Programming and production | — | — | — | — | 20,440 | — | 20,440 | ||||||||||||||
Other operating and administrative | 626 | — | 873 | 772 | 18,814 | (1,762 | ) | 19,323 | |||||||||||||
Advertising, marketing and promotion | — | — | — | — | 4,924 | — | 4,924 | ||||||||||||||
Depreciation | 34 | — | — | — | 6,036 | — | 6,070 | ||||||||||||||
Amortization | 4 | — | — | — | 1,746 | — | 1,750 | ||||||||||||||
Other operating gains | — | — | — | — | (341 | ) | — | (341 | ) | ||||||||||||
Total costs and expenses | 664 | — | 873 | 772 | 51,619 | (1,762 | ) | 52,166 | |||||||||||||
Operating income (loss) | 225 | — | — | (772 | ) | 15,042 | — | 14,495 | |||||||||||||
Interest expense | (1,739 | ) | (9 | ) | (143 | ) | (332 | ) | (190 | ) | — | (2,413 | ) | ||||||||
Investment and other income (loss), net | 10,416 | 10,279 | 8,832 | 5,107 | 3,977 | (38,519 | ) | 92 | |||||||||||||
Income (loss) before income taxes | 8,902 | 10,270 | 8,689 | 4,003 | 18,829 | (38,519 | ) | 12,174 | |||||||||||||
Income tax (expense) benefit | 318 | — | 29 | (12 | ) | (3,229 | ) | — | (2,894 | ) | |||||||||||
Net income (loss) | 9,220 | 10,270 | 8,718 | 3,991 | 15,600 | (38,519 | ) | 9,280 | |||||||||||||
Less: Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 60 | — | 60 | ||||||||||||||
Net income (loss) attributable to Comcast Corporation | $ | 9,220 | $ | 10,270 | $ | 8,718 | $ | 3,991 | $ | 15,540 | $ | (38,519 | ) | $ | 9,220 | ||||||
Comprehensive income (loss) attributable to Comcast Corporation | $ | 9,139 | $ | 10,245 | $ | 8,723 | $ | 3,877 | $ | 15,357 | $ | (38,202 | ) | $ | 9,139 | ||||||
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Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2019
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Net cash provided by (used in) operating activities | $ | (1,522 | ) | $ | 293 | $ | (217 | ) | $ | (910 | ) | $ | 21,818 | $ | — | $ | 19,462 | ||||
Investing Activities: | |||||||||||||||||||||
Net transactions with affiliates | 10,333 | (293 | ) | 217 | 2,883 | (13,140 | ) | — | — | ||||||||||||
Capital expenditures | (20 | ) | — | — | — | (6,846 | ) | — | (6,866 | ) | |||||||||||
Cash paid for intangible assets | (2 | ) | — | — | — | (1,684 | ) | — | (1,686 | ) | |||||||||||
Acquisitions and construction of real estate properties | (35 | ) | — | — | — | (5 | ) | — | (40 | ) | |||||||||||
Construction of Universal Beijing Resort | — | — | — | — | (736 | ) | — | (736 | ) | ||||||||||||
Acquisitions, net of cash acquired | — | — | — | — | (181 | ) | — | (181 | ) | ||||||||||||
Proceeds from sales of businesses and investments | — | — | — | — | 208 | — | 208 | ||||||||||||||
Purchases of investments | (25 | ) | — | — | (67 | ) | (1,605 | ) | — | (1,697 | ) | ||||||||||
Other | — | — | — | — | 86 | — | 86 | ||||||||||||||
Net cash provided by (used in) investing activities | 10,251 | (293 | ) | 217 | 2,816 | (23,903 | ) | — | (10,912 | ) | |||||||||||
Financing Activities: | |||||||||||||||||||||
Proceeds from (repayments of) short-term borrowings, net | — | — | — | — | (1,288 | ) | — | (1,288 | ) | ||||||||||||
Proceeds from borrowings | — | — | — | — | 516 | — | 516 | ||||||||||||||
Proceeds from collateralized obligation | — | — | — | — | 5,175 | — | 5,175 | ||||||||||||||
Repurchases and repayments of debt | (5,513 | ) | — | — | (2,008 | ) | (2,454 | ) | — | (9,975 | ) | ||||||||||
Repurchases of common stock under repurchase program and employee plans | (432 | ) | — | — | — | — | — | (432 | ) | ||||||||||||
Dividends paid | (2,778 | ) | — | — | — | — | — | (2,778 | ) | ||||||||||||
Distributions to noncontrolling interests and dividends for redeemable subsidiary preferred stock | — | — | — | — | (235 | ) | — | (235 | ) | ||||||||||||
Other | (5 | ) | — | — | (40 | ) | 236 | — | 191 | ||||||||||||
Net cash provided by (used in) financing activities | (8,728 | ) | — | — | (2,048 | ) | 1,950 | — | (8,826 | ) | |||||||||||
Impact of foreign currency on cash, cash equivalents and restricted cash | (1 | ) | — | — | — | (30 | ) | — | (31 | ) | |||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | — | — | — | (142 | ) | (165 | ) | — | (307 | ) | |||||||||||
Cash, cash equivalents and restricted cash, beginning of period | — | — | — | 416 | 3,493 | — | 3,909 | ||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | — | $ | — | $ | — | $ | 274 | $ | 3,328 | $ | — | $ | 3,602 | |||||||
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Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended September 30, 2018
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Net cash provided by (used in) operating activities | $ | (1,461 | ) | $ | 137 | $ | (206 | ) | $ | (1,047 | ) | $ | 21,084 | $ | — | $ | 18,507 | ||||
Investing Activities: | |||||||||||||||||||||
Net transactions with affiliates | (1,087 | ) | (586 | ) | 206 | 800 | 667 | — | — | ||||||||||||
Capital expenditures | (15 | ) | — | — | — | (6,592 | ) | — | (6,607 | ) | |||||||||||
Cash paid for intangible assets | (3 | ) | — | — | — | (1,372 | ) | — | (1,375 | ) | |||||||||||
Acquisitions and construction of real estate properties | (94 | ) | — | — | — | (35 | ) | — | (129 | ) | |||||||||||
Construction of Universal Beijing Resort | — | — | — | — | (257 | ) | — | (257 | ) | ||||||||||||
Acquisitions, net of cash acquired | — | — | — | — | (88 | ) | — | (88 | ) | ||||||||||||
Proceeds from sales of investments | — | — | — | 67 | 60 | — | 127 | ||||||||||||||
Purchases of investments | (118 | ) | — | — | (50 | ) | (672 | ) | — | (840 | ) | ||||||||||
Other | — | 449 | — | — | 130 | — | 579 | ||||||||||||||
Net cash provided by (used in) investing activities | (1,317 | ) | (137 | ) | 206 | 817 | (8,159 | ) | — | (8,590 | ) | ||||||||||
Financing Activities: | |||||||||||||||||||||
Proceeds from (repayments of) short-term borrowings, net | 2,117 | — | — | — | 792 | — | 2,909 | ||||||||||||||
Proceeds from borrowings | 9,386 | — | — | — | 464 | — | 9,850 | ||||||||||||||
Repurchases and repayments of debt | (1,900 | ) | — | — | (3 | ) | (2,502 | ) | — | (4,405 | ) | ||||||||||
Repurchases of common stock under repurchase program and employee plans | (4,282 | ) | — | — | — | — | — | (4,282 | ) | ||||||||||||
Dividends paid | (2,487 | ) | — | — | — | — | — | (2,487 | ) | ||||||||||||
Distributions to noncontrolling interests and dividends for redeemable subsidiary preferred stock | — | — | — | — | (209 | ) | — | (209 | ) | ||||||||||||
Other | (56 | ) | — | — | — | (186 | ) | — | (242 | ) | |||||||||||
Net cash provided by (used in) financing activities | 2,778 | — | — | (3 | ) | (1,641 | ) | — | 1,134 | ||||||||||||
Increase (decrease) in cash, cash equivalents and restricted cash | — | — | — | (233 | ) | 11,284 | — | 11,051 | |||||||||||||
Cash, cash equivalents and restricted cash, beginning of period | — | — | — | 496 | 3,075 | — | 3,571 | ||||||||||||||
Cash, cash equivalents and restricted cash, end of period | $ | — | $ | — | $ | — | $ | 263 | $ | 14,359 | $ | — | $ | 14,622 | |||||||
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Condensed Consolidating Balance Sheet
September 30, 2019
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Assets | |||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 274 | $ | 3,233 | $ | — | $ | 3,507 | |||||||
Receivables, net | — | — | — | — | 10,684 | — | 10,684 | ||||||||||||||
Programming rights | — | — | — | — | 3,457 | — | 3,457 | ||||||||||||||
Other current assets | 128 | 22 | — | 23 | 4,502 | — | 4,675 | ||||||||||||||
Total current assets | 128 | 22 | — | 297 | 21,876 | — | 22,323 | ||||||||||||||
Film and television costs | — | — | — | — | 8,647 | — | 8,647 | ||||||||||||||
Investments | 275 | 12 | 159 | 1,039 | 5,988 | — | 7,473 | ||||||||||||||
Investment securing collateralized obligation | — | — | — | — | 816 | — | 816 | ||||||||||||||
Investments in and amounts due from subsidiaries eliminated upon consolidation | 158,369 | 149,186 | 132,753 | 54,857 | 98,744 | (593,909 | ) | — | |||||||||||||
Property and equipment, net | 664 | — | — | — | 46,126 | — | 46,790 | ||||||||||||||
Franchise rights | — | — | — | — | 59,365 | — | 59,365 | ||||||||||||||
Goodwill | — | — | — | — | 66,913 | — | 66,913 | ||||||||||||||
Other intangible assets, net | 8 | — | — | — | 35,156 | — | 35,164 | ||||||||||||||
Other noncurrent assets, net | 1,025 | 166 | — | 95 | 8,014 | (417 | ) | 8,883 | |||||||||||||
Total assets | $ | 160,469 | $ | 149,386 | $ | 132,912 | $ | 56,288 | $ | 351,645 | $ | (594,326 | ) | $ | 256,374 | ||||||
Liabilities and Equity | |||||||||||||||||||||
Accounts payable and accrued expenses related to trade creditors | $ | — | $ | — | $ | — | $ | — | $ | 10,198 | $ | — | $ | 10,198 | |||||||
Accrued participations and residuals | — | — | — | — | 1,615 | — | 1,615 | ||||||||||||||
Deferred revenue | — | — | — | — | 2,944 | — | 2,944 | ||||||||||||||
Accrued expenses and other current liabilities | 2,421 | 244 | 256 | 415 | 6,857 | — | 10,193 | ||||||||||||||
Current portion of long-term debt | — | — | — | 7 | 1,032 | — | 1,039 | ||||||||||||||
Total current liabilities | 2,421 | 244 | 256 | 422 | 22,646 | — | 25,989 | ||||||||||||||
Long-term debt, less current portion | 76,654 | 152 | 2,100 | 5,751 | 15,190 | — | 99,847 | ||||||||||||||
Collateralized obligation | — | — | — | — | 5,165 | — | 5,165 | ||||||||||||||
Deferred income taxes | — | 344 | — | 68 | 28,142 | (562 | ) | 27,992 | |||||||||||||
Other noncurrent liabilities | 3,250 | — | — | 1,555 | 11,903 | 145 | 16,853 | ||||||||||||||
Redeemable noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 1,368 | — | 1,368 | ||||||||||||||
Equity: | |||||||||||||||||||||
Common stock | 54 | — | — | — | — | — | 54 | ||||||||||||||
Other shareholders’ equity | 78,090 | 148,646 | 130,556 | 48,492 | 266,215 | (593,909 | ) | 78,090 | |||||||||||||
Total Comcast Corporation shareholders’ equity | 78,144 | 148,646 | 130,556 | 48,492 | 266,215 | (593,909 | ) | 78,144 | |||||||||||||
Noncontrolling interests | — | — | — | — | 1,016 | — | 1,016 | ||||||||||||||
Total equity | 78,144 | 148,646 | 130,556 | 48,492 | 267,231 | (593,909 | ) | 79,160 | |||||||||||||
Total liabilities and equity | $ | 160,469 | $ | 149,386 | $ | 132,912 | $ | 56,288 | $ | 351,645 | $ | (594,326 | ) | $ | 256,374 | ||||||
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Condensed Consolidating Balance Sheet
December 31, 2018
(in millions) | Comcast Parent | Comcast Holdings | CCCL Parent | NBCUniversal Media Parent | Non- Guarantor Subsidiaries | Elimination and Consolidation Adjustments | Consolidated Comcast Corporation | ||||||||||||||
Assets | |||||||||||||||||||||
Cash and cash equivalents | $ | — | $ | — | $ | — | $ | 416 | $ | 3,398 | $ | — | $ | 3,814 | |||||||
Receivables, net | — | — | — | — | 11,104 | — | 11,104 | ||||||||||||||
Programming rights | — | — | — | — | 3,746 | — | 3,746 | ||||||||||||||
Other current assets | 66 | 20 | — | 28 | 3,070 | — | 3,184 | ||||||||||||||
Total current assets | 66 | 20 | — | 444 | 21,318 | — | 21,848 | ||||||||||||||
Film and television costs | — | — | — | — | 7,837 | — | 7,837 | ||||||||||||||
Investments | 270 | 11 | 143 | 790 | 6,669 | — | 7,883 | ||||||||||||||
Investments in and amounts due from subsidiaries eliminated upon consolidation | 157,264 | 147,028 | 130,214 | 53,853 | 97,872 | (586,231 | ) | — | |||||||||||||
Property and equipment, net | 670 | — | — | — | 43,767 | — | 44,437 | ||||||||||||||
Franchise rights | — | — | — | — | 59,365 | — | 59,365 | ||||||||||||||
Goodwill | — | — | — | — | 66,154 | — | 66,154 | ||||||||||||||
Other intangible assets, net | 11 | — | — | — | 38,347 | — | 38,358 | ||||||||||||||
Other noncurrent assets, net | 1,057 | 208 | — | 85 | 4,910 | (458 | ) | 5,802 | |||||||||||||
Total assets | $ | 159,338 | $ | 147,267 | $ | 130,357 | $ | 55,172 | $ | 346,239 | $ | (586,689 | ) | $ | 251,684 | ||||||
Liabilities and Equity | |||||||||||||||||||||
Accounts payable and accrued expenses related to trade creditors | $ | 2 | $ | — | $ | — | $ | — | $ | 8,492 | $ | — | $ | 8,494 | |||||||
Accrued participations and residuals | — | — | — | — | 1,808 | — | 1,808 | ||||||||||||||
Deferred revenue | — | — | — | — | 2,182 | — | 2,182 | ||||||||||||||
Accrued expenses and other current liabilities | 2,357 | 150 | 360 | 282 | 7,572 | — | 10,721 | ||||||||||||||
Current portion of long-term debt | 699 | — | — | 4 | 3,695 | — | 4,398 | ||||||||||||||
Total current liabilities | 3,058 | 150 | 360 | 286 | 23,749 | — | 27,603 | ||||||||||||||
Long-term debt, less current portion | 81,661 | 146 | 2,100 | 7,748 | 15,690 | — | 107,345 | ||||||||||||||
Deferred income taxes | — | 314 | — | 65 | 27,734 | (524 | ) | 27,589 | |||||||||||||
Other noncurrent liabilities | 3,006 | — | — | 1,201 | 11,056 | 66 | 15,329 | ||||||||||||||
Redeemable noncontrolling interests and redeemable subsidiary preferred stock | — | — | — | — | 1,316 | — | 1,316 | ||||||||||||||
Equity: | |||||||||||||||||||||
Common stock | 54 | — | — | — | — | — | 54 | ||||||||||||||
Other shareholders’ equity | 71,559 | 146,657 | 127,897 | 45,872 | 265,805 | (586,231 | ) | 71,559 | |||||||||||||
Total Comcast Corporation shareholders’ equity | 71,613 | 146,657 | 127,897 | 45,872 | 265,805 | (586,231 | ) | 71,613 | |||||||||||||
Noncontrolling interests | — | — | — | — | 889 | — | 889 | ||||||||||||||
Total equity | 71,613 | 146,657 | 127,897 | 45,872 | 266,694 | (586,231 | ) | 72,502 | |||||||||||||
Total liabilities and equity | $ | 159,338 | $ | 147,267 | $ | 130,357 | $ | 55,172 | $ | 346,239 | $ | (586,689 | ) | $ | 251,684 | ||||||
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ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We are a global media and technology company with three primary businesses: Comcast Cable, NBCUniversal, and Sky. We present our operations for (1) Comcast Cable in one reportable business segment, referred to as Cable Communications; (2) NBCUniversal in four reportable business segments: Cable Networks, Broadcast Television, Filmed Entertainment and Theme Parks (collectively, the “NBCUniversal segments”); and (3) Sky in one reportable business segment.
On October 9, 2018, in connection with our offer to acquire the share capital of Sky, we acquired a controlling interest in Sky through a series of purchases of Sky shares at our offer price of £17.28 per share. In the fourth quarter of 2018, we acquired the remaining Sky shares and now own 100% of Sky’s equity interests. Total cash consideration was £30.2 billion (approximately $39.4 billion using the exchange rates on the purchase dates). We financed the acquisition through a combination of new fixed and floating rate notes, issuance of term loans and cash on hand.
Cable Communications Segment
Comcast Cable is one of the nation’s largest providers of high-speed internet, video, voice, wireless, and security and automation services (“cable services”) to residential customers under the Xfinity brand; we also provide these and other services to business customers and sell advertising. As of September 30, 2019, our cable systems had 31.2 million total customer relationships, including 28.8 million residential and 2.4 million business customer relationships, and passed approximately 59 million homes and businesses. Our Cable Communications segment generates revenue primarily from residential and business customers that subscribe to our cable services, which we market individually and as bundled services, and from the sale of advertising.
NBCUniversal Segments
NBCUniversal is one of the world’s leading media and entertainment companies that develops, produces and distributes entertainment, news and information, sports, and other content for global audiences, and owns and operates theme parks worldwide.
Cable Networks
Our Cable Networks segment consists primarily of a diversified portfolio of cable television networks. Our cable networks are comprised of our national cable networks that provide a variety of entertainment, news and information, and sports content; our regional sports and news networks; our international cable networks; our cable television studio production operations; and our various digital properties. Our Cable Networks segment generates revenue primarily from the distribution of our cable network programming to traditional and virtual multichannel video providers; from the sale of advertising on our cable networks and digital properties; from the licensing of our owned programming, including programming from our cable television studio production operations, to cable and broadcast networks and subscription video on demand services; and from the sale of our owned programming on standard-definition digital video discs and Blu-ray discs (together, “DVDs”) and through digital distribution services such as iTunes.
Broadcast Television
Our Broadcast Television segment consists primarily of the NBC and Telemundo broadcast networks, our NBC and Telemundo owned local broadcast television stations, the NBC Universo national cable network, our broadcast television studio production operations, and our various digital properties. Our Broadcast Television segment generates revenue primarily from the sale of advertising on our broadcast networks, owned local broadcast television stations and digital properties; from the licensing of our owned programming by our broadcast television studio production operations to various distribution platforms, including to cable and broadcast networks as well as to subscription video on demand services; from the fees received under retransmission consent agreements and associated fees received from NBC-affiliated local broadcast television stations; and from the sale of our owned programming on DVDs and through digital distribution services.
Filmed Entertainment
Our Filmed Entertainment segment primarily produces, acquires, markets and distributes filmed entertainment worldwide. Our films are produced primarily under the Universal Pictures, Illumination, DreamWorks Animation and Focus Features names. Our Filmed Entertainment segment generates revenue primarily from the worldwide distribution of our produced and acquired films for exhibition in movie theaters, from the licensing of produced and acquired films through various distribution platforms, and from the sale of produced and acquired films on DVDs and through digital distribution services. Our Filmed Entertainment segment also generates revenue from Fandango, a movie ticketing and entertainment business, the sale of consumer products, the production and licensing of live stage plays, and the distribution of filmed entertainment produced by third parties.
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Theme Parks
Our Theme Parks segment consists primarily of our Universal theme parks in Orlando, Florida; Hollywood, California; and Osaka, Japan. In addition, we are developing a theme park in Beijing, China along with a consortium of Chinese state-owned companies, and an additional theme park in Orlando, Florida. Our Theme Parks segment generates revenue primarily from ticket sales and guest spending at our Universal theme parks.
Sky Segment
Our Sky segment consists of the operations of Sky, one of Europe’s leading entertainment companies, which primarily includes a direct-to-consumer business, providing video, high-speed internet, voice and wireless phone services, and a content business, operating entertainment networks, the Sky News broadcast network and Sky Sports networks. As of September 30, 2019, Sky had 23.9 million retail customer relationships.
Corporate and Other
Our other business interests consist primarily of the operations of Comcast Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center arena in Philadelphia, Pennsylvania. We are also pursuing other business initiatives, such as the development of Peacock, NBCUniversal’s direct-to-consumer streaming service.
Competition
The results of operations of our reportable business segments are affected by competition, as all of our businesses operate in intensely competitive, consumer-driven and rapidly changing environments and compete with a growing number of companies that provide a broad range of communications products and services and entertainment, news and information content to consumers. Technological changes are further intensifying and complicating the competitive landscape and challenging existing business models. In particular, consumers are increasingly turning to online sources for viewing and purchasing content, which has and likely will continue to reduce the number of our video customers and subscribers to our cable networks even as it makes our high-speed internet services more valuable to consumers. In addition, the increasing number of entertainment choices available has intensified audience fragmentation, which has and likely will continue to adversely affect the audience ratings of NBCUniversal’s cable networks and broadcast television programming and Sky’s owned television channels.
For additional information on the competition our businesses face, see our 2018 Annual Report on Form 10-K and refer to Item 1: Business and Item 1A: Risk Factors. Within the Business section, refer to the “Competition” discussion, and within the Risk Factors section, refer to the risk factors entitled “Our businesses currently face a wide range of competition, and our businesses and results of operations could be adversely affected if we do not compete effectively” and “Changes in consumer behavior driven by online distribution platforms for viewing content could adversely affect our businesses and challenge existing business models.”
Seasonality and Cyclicality
Each of our businesses is subject to seasonal and cyclical variations. In our Cable Communications segment, our results are impacted by the seasonal nature of residential customers receiving our cable services in college and vacation markets. This generally results in fewer net customer relationship additions in the second quarter of each year. In our Sky segment, our results are impacted by the seasonal nature of residential customers receiving direct-to-home (“DTH”) and over the top (“OTT”) video services, including the start of the new soccer seasons and the Christmas holiday. This generally results in greater net customer relationship additions and higher subscriber acquisition costs in the fourth quarter of each year due to higher marketing expenses.
Revenue in our Cable Communications, Cable Networks, Broadcast Television and Sky segments is subject to cyclical advertising patterns and changes in viewership levels. Advertising revenue in the U.S. is generally higher in the second and fourth quarters of each year, due in part to increases in consumer advertising in the spring and in the period leading up to and including the holiday season. Advertising revenue in the U.S. is also cyclical, with a benefit in even-numbered years due to advertising related to candidates running for political office and issue-oriented advertising. Revenue in our Cable Networks and Broadcast Television segments fluctuates depending on the timing of when our programming is aired, which typically results in higher advertising revenue in the second and fourth quarters of each year. The results of Sky’s advertising business are subject to cyclical advertising patterns and changes in viewership levels. This includes seasonally higher audience levels in winter months and increased competition during major sporting events where public service broadcasters lease the rights, such as the Olympic Games and the FIFA World Cup™. The results for Sky’s content business are also subject to fluctuations as a result of changes in timing, nature and quantity of original programming distributed to other markets.
Our revenue and operating costs and expenses (comprised of total costs and expenses, excluding depreciation and amortization expense and other operating gains) are cyclical as a result of our periodic broadcasts of major sporting events, such as the Olympic Games, which affect our Cable Networks and Broadcast Television segments, and the Super Bowl, which affects our Broadcast Television segment. In particular, our advertising revenue increases due to increased demand for advertising time and our distribution
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revenue increases in the period of these broadcasts. Our operating costs and expenses also increase as a result of our production costs for these broadcasts and the amortization of the related rights fees.
Revenue in our Filmed Entertainment segment fluctuates due to the timing, nature and number of films released in movie theaters, on DVDs, and through various other distribution platforms. Release dates are determined by several factors, including competition and the timing of vacation and holiday periods. As a result, revenue tends to be seasonal, with increases experienced each year during the summer months and around the holiday season. Content licensing revenue in our Cable Networks, Broadcast Television and Filmed Entertainment segments also fluctuates due to the timing of when our content is made available to licensees.
Revenue in our Theme Parks segment fluctuates with changes in theme park attendance that result from the seasonal nature of vacation travel and weather variations, local entertainment offerings and the opening of new attractions, as well as with changes in currency exchange rates. Our theme parks generally experience peak attendance during the spring holiday period, the summer months when schools are closed and the holiday season.
Exclusive tier one sports rights, such as local European and UEFA Champions League soccer, Formula 1, and English cricket, play a key role within Sky’s wider content strategy. In Europe broadcasting rights for tier one sports are usually tendered through a competitive auction process, with the winning bidder or bidders acquiring rights over a three to five-year period. This creates some level of cyclicality for Sky, although the staggered timing of tier one sports rights auctions usually gives Sky time to react to any material changes in the competitive dynamics of the prevailing market.
Consolidated Operating Results
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||||||
Revenue | $ | 26,827 | $ | 22,135 | 21.2 | % | $ | 80,544 | $ | 66,661 | 20.8 | % | |||||||||
Costs and Expenses: | |||||||||||||||||||||
Programming and production | 8,316 | 6,711 | 23.9 | 25,140 | 20,440 | 23.0 | |||||||||||||||
Other operating and administrative | 8,090 | 6,444 | 25.5 | 24,076 | 19,323 | 24.6 | |||||||||||||||
Advertising, marketing and promotion | 1,901 | 1,667 | 14.1 | 5,674 | 4,924 | 15.2 | |||||||||||||||
Depreciation | 2,124 | 2,038 | 4.2 | 6,561 | 6,070 | 8.1 | |||||||||||||||
Amortization | 1,056 | 580 | 81.5 | 3,215 | 1,750 | 83.6 | |||||||||||||||
Other operating gains | — | (141 | ) | NM | — | (341 | ) | NM | |||||||||||||
Operating income | 5,340 | 4,836 | 10.4 | 15,878 | 14,495 | 9.5 | |||||||||||||||
Interest expense | (1,167 | ) | (830 | ) | 40.6 | (3,454 | ) | (2,413 | ) | 43.1 | |||||||||||
Investment and other income (loss), net | (110 | ) | (111 | ) | (0.3 | ) | 511 | 92 | NM | ||||||||||||
Income before income taxes | 4,063 | 3,895 | 4.3 | 12,935 | 12,174 | 6.2 | |||||||||||||||
Income tax expense | (775 | ) | (999 | ) | (22.5 | ) | (2,812 | ) | (2,894 | ) | (2.8 | ) | |||||||||
Net income | 3,288 | 2,896 | 13.6 | 10,123 | 9,280 | 9.1 | |||||||||||||||
Less: Net income attributable to noncontrolling interests and redeemable subsidiary preferred stock | 71 | 10 | NM | 228 | 60 | NM | |||||||||||||||
Net income attributable to Comcast Corporation | $ | 3,217 | $ | 2,886 | 11.5 | % | $ | 9,895 | $ | 9,220 | 7.3 | % | |||||||||
Basic earnings per common share attributable to Comcast Corporation shareholders | $ | 0.71 | $ | 0.63 | 12.7 | % | $ | 2.18 | $ | 2.00 | 9.0 | % | |||||||||
Diluted earnings per common share attributable to Comcast Corporation shareholders | $ | 0.70 | $ | 0.62 | 12.9 | % | $ | 2.15 | $ | 1.98 | 8.6 | % | |||||||||
Adjusted EBITDA(a) | $ | 8,553 | $ | 7,313 | 17.0 | % | $ | 25,822 | $ | 21,974 | 17.5 | % | |||||||||
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.
(a) | Adjusted EBITDA is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section on page 44 for additional information, including our definition and our use of Adjusted EBITDA, and for a reconciliation from net income attributable to Comcast Corporation to Adjusted EBITDA. |
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The comparability of our consolidated results of operations was impacted by the Sky transaction in the fourth quarter of 2018. Sky’s results of operations are included in our condensed consolidated financial statements following the October 9, 2018 acquisition date.
Consolidated Revenue
Consolidated revenue increased for the three and nine months ended September 30, 2019 primarily due to the acquisition of Sky. Our Cable Communications and Theme Parks segments accounted for the remaining increase in consolidated revenue for the three and nine months ended September 30, 2019, which was partially offset by decreases in revenue in our Broadcast Television, Filmed Entertainment and Cable Networks segments. Consolidated revenue for the nine months ended September 30, 2018 included revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl in February 2018.
Revenue for our segments is discussed separately below under the heading “Segment Operating Results.” Revenue for our business development initiatives and other businesses is discussed separately below under the heading “Corporate and Other Results of Operations.”
Consolidated Costs and Expenses
Consolidated operating costs and expenses increased for the three and nine months ended September 30, 2019 primarily due to the acquisition of Sky. Our Cable Communications and Theme Parks segments accounted for the remaining increase in consolidated operating costs and expenses for the three and nine months ended September 30, 2019, which was partially offset by decreases in operating costs and expenses in our Broadcast Television, Filmed Entertainment and Cable Networks segments. Consolidated operating costs and expenses for the nine months ended September 30, 2018 included costs associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl in February 2018.
Operating costs and expenses for our segments are discussed separately below under the heading “Segment Operating Results.” Operating costs and expenses for our corporate operations, businesses development initiatives and other businesses are discussed separately below under the heading “Corporate and Other Results of Operations.”
Consolidated Depreciation and Amortization Expense
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||||||
Cable Communications | $ | 1,967 | $ | 2,077 | (5.3 | )% | $ | 6,038 | $ | 6,161 | (2.0 | )% | |||||||||
NBCUniversal | 537 | 514 | 4.3 | 1,579 | 1,577 | — | |||||||||||||||
Sky | 644 | — | NM | 2,058 | — | NM | |||||||||||||||
Corporate and Other | 32 | 27 | 18.6 | 101 | 82 | 26.0 | |||||||||||||||
Total | $ | 3,180 | $ | 2,618 | 21.4 | % | $ | 9,776 | $ | 7,820 | 25.0 | % | |||||||||
Consolidated depreciation and amortization expense increased for the three and nine months ended September 30, 2019 primarily due to depreciation and amortization expense related to Sky. During the first quarter of 2019, we recorded adjustments to the purchase price allocation of Sky, primarily related to intangible assets and property and equipment. This change resulted in an adjustment recorded in the first quarter of 2019 related to the fourth quarter of 2018 that increased depreciation and amortization expense by $53 million.
Amortization expense from acquisition-related intangible assets, such as customer relationships, totaled $486 million and $1.5 billion for the three and nine months ended September 30, 2019, respectively. Amortization expense from acquisition-related intangible assets, such as customer relationships, totaled $198 million and $639 million for the three and nine months ended September 30, 2018, respectively. Amounts primarily relate to customer relationship intangible assets recorded in connection with the Sky transaction in the fourth quarter of 2018 and the NBCUniversal transaction in 2011 (see Note 6 to Comcast’s condensed consolidated financial statements for additional information on the Sky transaction).
Consolidated Other Operating Gains
Consolidated other operating gains for the three and nine months ended September 30, 2018 included $141 million related to the sale of a business in our Filmed Entertainment segment. The nine months ended September 30, 2018 also included $200 million related to the sale of a controlling interest in our arena management-related businesses in Corporate and Other (see Note 9 to Comcast’s condensed consolidated financial statements).
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Consolidated Interest Expense
Consolidated interest expense increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to increases in our debt outstanding associated with the financing of and debt assumed in connection with the Sky transaction in the fourth quarter of 2018, as well as a $56 million charge recorded in the third quarter of 2019 related to the early redemption of debt.
Consolidated Investment and Other Income (Loss), Net
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Equity in net income (losses) of investees, net | $ | (355 | ) | $ | (76 | ) | $ | (295 | ) | $ | (56 | ) | |||
Realized and unrealized gains (losses) on equity securities, net | 174 | (38 | ) | 582 | (50 | ) | |||||||||
Other income (loss), net | 71 | 3 | 224 | 198 | |||||||||||
Total | $ | (110 | ) | $ | (111 | ) | $ | 511 | $ | 92 | |||||
Equity in Net Income (Losses) of Investees, Net
The changes in equity in net income (losses) of investees, net for the three and nine months ended September 30, 2019 compared to the same periods in 2018 were primarily related to our equity method investments in Atairos and Hulu. The income (losses) at Atairos were driven by fair value adjustments on its underlying investments. The losses at Hulu were primarily due to programming, advertising and marketing costs, and higher other administrative expenses. The equity in net income (losses) of Atairos and Hulu for the three and nine months ended September 30, 2019 and 2018 are presented in the table below.
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Atairos | $ | (262 | ) | $ | 38 | $ | 6 | $ | 224 | ||||||
Hulu | $ | (101 | ) | $ | (132 | ) | $ | (351 | ) | $ | (370 | ) | |||
Realized and Unrealized Gains (Losses) on Equity Securities, Net
The realized and unrealized gains (losses) on equity securities, net for the three and nine months ended September 30, 2019 were primarily due to unrealized gains of $45 million and $303 million, respectively, related to our investment in Snap, and a $150 million gain related to our investment in Peloton as a result of its initial public offering in the third quarter of 2019.
Other Income (Loss), Net
Other income (loss), net included $219 million of gains recorded in the first and third quarters of 2019 related to the dilution of our Hulu ownership and $90 million of losses due to equity method investment impairments in the second and third quarters of 2019. Other income (loss), net included a $64 million gain related to the sale of our investment in the Weather Channel cable network in the first quarter of 2018. See Note 9 to Comcast’s condensed consolidated financial statements and Note 8 to NBCUniversal’s condensed consolidated financial statements for further information.
Consolidated Income Tax Expense
Income tax expense for the three and nine months ended September 30, 2019 and 2018 reflects an effective income tax rate that differs from the federal statutory rate primarily due to state and foreign income taxes and adjustments associated with uncertain tax positions. The decrease in income tax expense for the three and nine months ended September 30, 2019 compared to the same periods in 2018 was primarily due to state and federal tax law changes that were enacted in 2018 resulting in $148 million of higher income tax expense in the third quarter of 2018 and $125 million of benefits related to state income tax adjustments recognized in the third quarter of 2019, partially offset by higher taxable income from operations. We also recognized an income tax benefit of $128 million during the first quarter of 2018 related to the enactment of federal tax legislation in 2018.
Segment Operating Results
Our segment operating results are presented based on how we assess operating performance and internally report financial information. We use Adjusted EBITDA as the measure of profit or loss for our operating segments. See Note 2 to both Comcast’s and NBCUniversal’s condensed consolidated financial statements for our definition of Adjusted EBITDA and a reconciliation from the aggregate amount of Adjusted EBITDA for our reportable business segments to consolidated income before income taxes.
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Beginning in the first quarter of 2019, Comcast Cable’s wireless phone service and certain other Cable-related business development initiatives are now presented in the Cable Communications segment. Results were previously presented in Corporate and Other. Prior periods have been adjusted to reflect this presentation. To be consistent with our current management reporting presentation, certain 2018 operating results were reclassified related to certain NBCUniversal businesses now presented in the Sky segment.
Cable Communications Segment Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | |||||||||||||
(in millions) | 2019 | 2018 | $ | % | ||||||||||
Revenue | ||||||||||||||
Residential: | ||||||||||||||
High-speed internet | $ | 4,721 | $ | 4,321 | $ | 400 | 9.3 | % | ||||||
Video | 5,541 | 5,591 | (50 | ) | (0.9 | ) | ||||||||
Voice | 963 | 982 | (19 | ) | (1.9 | ) | ||||||||
Wireless | 326 | 236 | 90 | 38.1 | ||||||||||
Business services | 1,971 | 1,803 | 168 | 9.3 | ||||||||||
Advertising | 603 | 684 | (81 | ) | (11.9 | ) | ||||||||
Other | 459 | 406 | 53 | 13.4 | ||||||||||
Total revenue | 14,584 | 14,023 | 561 | 4.0 | ||||||||||
Operating costs and expenses | ||||||||||||||
Programming | 3,315 | 3,309 | 6 | 0.2 | ||||||||||
Technical and product support | 2,066 | 1,885 | 181 | 9.6 | ||||||||||
Customer service | 628 | 636 | (8 | ) | (1.3 | ) | ||||||||
Advertising, marketing and promotion | 1,024 | 1,007 | 17 | 1.7 | ||||||||||
Franchise and other regulatory fees | 408 | 393 | 15 | 4.1 | ||||||||||
Other | 1,342 | 1,359 | (17 | ) | (1.2 | ) | ||||||||
Total operating costs and expenses | 8,783 | 8,589 | 194 | 2.3 | ||||||||||
Adjusted EBITDA | $ | 5,801 | $ | 5,434 | $ | 367 | 6.7 | % | ||||||
Nine Months Ended September 30 | Increase/ (Decrease) | |||||||||||||
(in millions) | 2019 | 2018 | $ | % | ||||||||||
Revenue | ||||||||||||||
Residential: | ||||||||||||||
High-speed internet | $ | 13,961 | $ | 12,740 | $ | 1,221 | 9.6 | % | ||||||
Video | 16,763 | 16,878 | (115 | ) | (0.7 | ) | ||||||||
Voice | 2,935 | 2,982 | (47 | ) | (1.6 | ) | ||||||||
Wireless | 795 | 623 | 172 | 27.6 | ||||||||||
Business services | 5,795 | 5,290 | 505 | 9.5 | ||||||||||
Advertising | 1,766 | 1,932 | (166 | ) | (8.6 | ) | ||||||||
Other | 1,299 | 1,193 | 106 | 8.8 | ||||||||||
Total revenue | 43,314 | 41,638 | 1,676 | 4.0 | ||||||||||
Operating costs and expenses | ||||||||||||||
Programming | 10,106 | 9,947 | 159 | 1.6 | ||||||||||
Technical and product support | 5,844 | 5,583 | 261 | 4.7 | ||||||||||
Customer service | 1,877 | 1,912 | (35 | ) | (1.8 | ) | ||||||||
Advertising, marketing and promotion | 3,000 | 2,966 | 34 | 1.2 | ||||||||||
Franchise and other regulatory fees | 1,189 | 1,188 | 1 | 0.2 | ||||||||||
Other | 3,915 | 3,942 | (27 | ) | (0.7 | ) | ||||||||
Total operating costs and expenses | 25,931 | 25,538 | 393 | 1.5 | ||||||||||
Adjusted EBITDA | $ | 17,383 | $ | 16,100 | $ | 1,283 | 8.0 | % | ||||||
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Customer Metrics
Net Additions | ||||||||||||
September 30 | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||
Customer relationships | ||||||||||||
Residential customer relationships | 28,797 | 27,869 | 288 | 270 | 688 | 685 | ||||||
Business services customer relationships | 2,377 | 2,274 | 21 | 30 | 74 | 94 | ||||||
Total customer relationships | 31,173 | 30,143 | 309 | 299 | 762 | 779 | ||||||
Residential customer relationships mix | ||||||||||||
One product customers | 9,905 | 8,864 | 379 | 270 | 890 | 689 | ||||||
Two product customers | 8,915 | 8,958 | (38 | ) | (22 | ) | (78 | ) | (60 | ) | ||
Three or more product customers | 9,977 | 10,047 | (53 | ) | 22 | (125 | ) | 55 | ||||
High-speed internet | ||||||||||||
Residential customers | 25,990 | 24,774 | 359 | 334 | 893 | 910 | ||||||
Business services customers | 2,197 | 2,098 | 20 | 29 | 71 | 92 | ||||||
Total high-speed internet customers | 28,186 | 26,871 | 379 | 363 | 964 | 1,002 | ||||||
Video | ||||||||||||
Residential customers | 20,421 | 20,978 | (222 | ) | (95 | ) | (539 | ) | (325 | ) | ||
Business services customers | 983 | 1,037 | (16 | ) | (11 | ) | (45 | ) | (17 | ) | ||
Total video customers | 21,403 | 22,015 | (238 | ) | (106 | ) | (583 | ) | (342 | ) | ||
Voice | ||||||||||||
Residential customers | 9,945 | 10,164 | (63 | ) | (49 | ) | (208 | ) | (151 | ) | ||
Business services customers | 1,334 | 1,283 | 10 | 13 | 37 | 46 | ||||||
Total voice customers | 11,278 | 11,447 | (53 | ) | (35 | ) | (171 | ) | (105 | ) | ||
Security and automation | ||||||||||||
Security and automation customers | 1,365 | 1,277 | 8 | 42 | 48 | 147 | ||||||
Wireless | ||||||||||||
Wireless lines | 1,791 | 1,009 | 204 | 228 | 555 | 628 | ||||||
Customer metrics are presented based on actual amounts. Minor differences may exist due to rounding. Customer relationships represent the number of residential and business customers that subscribe to at least one of our cable services. One product, two product, and three or more product customers represent residential customers that subscribe to one, two, or three or more of our cable services, respectively. For multiple dwelling units (“MDUs”), including buildings located on college campuses, whose residents have the ability to receive additional cable services, such as additional programming choices or our high-definition video (“HD”) or digital video recorder (“DVR”) advanced services, we count and report customers based on the number of potential billable relationships within each MDU. For MDUs whose residents are not able to receive additional cable services, the MDU is counted as a single customer. Residential high-speed internet and video customers as of September 30, 2019 included prepaid customers totaling approximately 184,000 and 6,000, respectively. Wireless lines represent the number of activated eligible wireless devices on customers’ accounts. Individual customer relationships may have multiple wireless lines.
Average monthly total revenue per customer relationship for the three and nine months ended September 30, 2019 was $156.72 and $156.29, respectively. Average monthly total revenue per customer relationship for the three and nine months ended September 30, 2018 was $155.84 and $155.49, respectively. This metric is impacted by rate adjustments and changes in the types and levels of services received by our residential and business services customers, as well as changes in advertising revenue. While revenue from our high-speed internet, video, voice and wireless services is also impacted by changes in the allocation of revenue among services sold in a bundle, the allocation does not impact average monthly total revenue per customer relationship.
Average monthly Adjusted EBITDA per customer relationship for the three and nine months ended September 30, 2019 was $62.34 and $62.72, respectively. Average monthly Adjusted EBITDA per customer relationship for the three and nine months ended September 30, 2018 was $60.39 and $60.13, respectively. Each of our cable services has a different contribution to operating margin. We use average monthly Adjusted EBITDA per customer relationship to evaluate the profitability of our customer base across our service offerings. We believe this metric is useful particularly as we continue to focus on growing our higher-margin businesses, including residential high-speed internet and business services.
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Cable Communications Segment – Revenue
High-Speed Internet
High-speed internet revenue increased 9.3% and 9.6% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Increases in the number of residential customers receiving our high-speed internet services accounted for increases in revenue of 4.9% and 5.0% for the three and nine months ended September 30, 2019, respectively. The remaining increases in revenue for the three and nine months ended September 30, 2019 were primarily due to increases in average rates.
Video
Video revenue was flat for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to declines in the number of residential video customers, partially offset by increases in average rates.
We have experienced, and expect that we will continue to experience, declines in the number of residential video customers due to competitive pressures, and we expect that our video revenue will continue to decline as a result of the competitive environment and shifting video consumption patterns. We believe our X1 platform helps us compete more effectively against this competition, and have also continued to employ sales and marketing programs, such as promotions, bundled service offerings and service offerings targeted at specific market segments.
Voice
Voice revenue decreased 1.9% and 1.6% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to declines in the number of residential voice customers. We expect that the number of residential voice customers and voice revenue will continue to decline.
Wireless
Wireless revenue increased 38.1% and 27.6% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to increases in the number of customer lines. For the nine months ended September 30, 2019, while the number of customer lines increased, the sales of handsets declined due to customers electing to bring their own device.
Business Services
Business services revenue increased 9.3% and 9.5% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. The increases were primarily due to increases in the number of customers receiving our services and increases in average rates.
Advertising
Advertising revenue decreased 11.9% and 8.6% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to decreases in political advertising revenue. Excluding the impact of political advertising revenue, advertising revenue increased 1.2% for the three months ended September 30, 2019 and decreased 1.1% for the nine months ended September 30, 2019, compared to the same periods in 2018.
For the three and nine months ended September 30, 2019, 8% and 6% of our Cable Communications segment advertising revenue was generated from our NBCUniversal segments, respectively. For both the three and nine months ended September 30, 2018, 4% of our Cable Communications segment advertising revenue was generated from our NBCUniversal segments. These amounts are eliminated in our condensed consolidated financial statements but are included in the amounts presented above.
Other
Other revenue increased 13.4% and 8.8% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to increases from the timing of revenue from the licensing of our technology platforms to other multichannel video providers and from our security and automation services.
Cable Communications Segment – Operating Costs and Expenses
Programming expenses were flat for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to increases in retransmission consent and sports programming fees, offset by declines in the number of video subscribers. Programming expenses increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to increases in retransmission consent and sports programming fees, partially offset by declines in the number of video subscribers. We anticipate that our programming expenses will continue to increase, which may be at rates higher than those experienced recently, due to the timing of contract renewals in the future.
35
Technical and product support expenses increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018. The increases were primarily due to expenses related to the continued development, deployment and support of our products and services, expenses related to the continued growth in business services and increased costs associated with our wireless phone service. The increases in wireless phone service costs were primarily due to increases in the number of lines. For the nine months ended September 30, 2019, while customer lines increased, the costs of handsets sold decreased due to customers electing to bring their own device, which partially offset an increase in variable network fees.
Customer service expenses decreased for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to lower personnel costs.
Advertising, marketing and promotion expenses increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to increases in spending associated with attracting new customers. The increase for the nine months ended September 30, 2019 was partially offset by the absence of advertising expenses associated with the 2018 PyeongChang Olympics.
Franchise and other regulatory fees increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to an increase in the related rates of these fees, partially offset by a decrease in the revenue to which the fees apply. Franchise and other regulatory fees were flat for the nine months ended September 30, 2019 compared to the same period in 2018.
Other operating costs and expenses were flat for the three and nine months ended September 30, 2019 compared to the same periods in 2018.
Cable Communications Segment – Operating Margin
Our Cable Communications segment operating margin is Adjusted EBITDA as a percentage of revenue. The most significant operating costs and expenses for our Cable Communications segment are the programming expenses we incur to provide content to our video customers.
Our Cable Communications segment operating margin for the three and nine months ended September 30, 2019 was 39.8% and 40.1%, respectively. Our Cable Communications segment operating margin for the three and nine months ended September 30, 2018 was 38.8% and 38.7%, respectively. We continue to focus on growing our higher-margin businesses, particularly residential high-speed internet and business services, and on improving losses related to our wireless phone service and overall operating cost management. Losses from our wireless phone service were $94 million and $285 million for the three and nine months ended September 30, 2019, respectively, compared to losses of $178 million and $552 million for the three and nine months ended September 30, 2018, respectively.
NBCUniversal Segments Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Cable Networks | $ | 2,771 | $ | 2,850 | $ | (79 | ) | (2.8 | )% | ||||
Broadcast Television | 2,230 | 2,452 | (222 | ) | (9.1 | ) | |||||||
Filmed Entertainment | 1,706 | 1,819 | (113 | ) | (6.2 | ) | |||||||
Theme Parks | 1,631 | 1,528 | 103 | 6.8 | |||||||||
Headquarters, other and eliminations | (43 | ) | (53 | ) | 10 | NM | |||||||
Total revenue | $ | 8,295 | $ | 8,596 | $ | (301 | ) | (3.5 | )% | ||||
Adjusted EBITDA | |||||||||||||
Cable Networks | $ | 955 | $ | 959 | $ | (4 | ) | (0.4 | )% | ||||
Broadcast Television | 338 | 321 | 17 | 5.1 | |||||||||
Filmed Entertainment | 195 | 214 | (19 | ) | (8.7 | ) | |||||||
Theme Parks | 731 | 725 | 6 | 0.9 | |||||||||
Headquarters, other and eliminations | (128 | ) | (162 | ) | 34 | NM | |||||||
Total Adjusted EBITDA | $ | 2,091 | $ | 2,057 | $ | 34 | 1.6 | % | |||||
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Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Cable Networks | $ | 8,586 | $ | 8,881 | $ | (295 | ) | (3.3 | )% | ||||
Broadcast Television | 7,099 | 8,340 | (1,241 | ) | (14.9 | ) | |||||||
Filmed Entertainment | 4,931 | 5,176 | (245 | ) | (4.7 | ) | |||||||
Theme Parks | 4,371 | 4,170 | 201 | 4.8 | |||||||||
Headquarters, other and eliminations | (173 | ) | (201 | ) | 28 | NM | |||||||
Total revenue | $ | 24,814 | $ | 26,366 | $ | (1,552 | ) | (5.9 | )% | ||||
Adjusted EBITDA | |||||||||||||
Cable Networks | $ | 3,418 | $ | 3,389 | $ | 29 | 0.9 | % | |||||
Broadcast Television | 1,259 | 1,245 | 14 | 1.1 | |||||||||
Filmed Entertainment | 742 | 555 | 187 | 33.7 | |||||||||
Theme Parks | 1,819 | 1,789 | 30 | 1.7 | |||||||||
Headquarters, other and eliminations | (486 | ) | (500 | ) | 14 | NM | |||||||
Total Adjusted EBITDA | $ | 6,752 | $ | 6,478 | $ | 274 | 4.2 | % | |||||
Percentage changes that are considered not meaningful are denoted with NM.
Cable Networks Segment Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Distribution | $ | 1,681 | $ | 1,655 | $ | 26 | 1.6 | % | |||||
Advertising | 809 | 812 | (3 | ) | (0.3 | ) | |||||||
Content licensing and other | 281 | 383 | (102 | ) | (27.2 | ) | |||||||
Total revenue | 2,771 | 2,850 | (79 | ) | (2.8 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 1,323 | 1,393 | (70 | ) | (5.0 | ) | |||||||
Other operating and administrative | 375 | 366 | 9 | 2.3 | |||||||||
Advertising, marketing and promotion | 118 | 132 | (14 | ) | (10.6 | ) | |||||||
Total operating costs and expenses | 1,816 | 1,891 | (75 | ) | (4.0 | ) | |||||||
Adjusted EBITDA | $ | 955 | $ | 959 | $ | (4 | ) | (0.4 | )% | ||||
Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Distribution | $ | 5,123 | $ | 5,166 | $ | (43 | ) | (0.8 | )% | ||||
Advertising | 2,592 | 2,718 | (126 | ) | (4.6 | ) | |||||||
Content licensing and other | 871 | 997 | (126 | ) | (12.8 | ) | |||||||
Total revenue | 8,586 | 8,881 | (295 | ) | (3.3 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 3,740 | 4,033 | (293 | ) | (7.3 | ) | |||||||
Other operating and administrative | 1,104 | 1,092 | 12 | 0.9 | |||||||||
Advertising, marketing and promotion | 324 | 367 | (43 | ) | (11.7 | ) | |||||||
Total operating costs and expenses | 5,168 | 5,492 | (324 | ) | (5.9 | ) | |||||||
Adjusted EBITDA | $ | 3,418 | $ | 3,389 | $ | 29 | 0.9 | % | |||||
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Cable Networks Segment – Revenue
Cable Networks revenue decreased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to decreases in content licensing and other revenue, partially offset by an increase in distribution revenue. The decrease in content licensing and other revenue was due to the timing of content provided under our licensing agreements. The increase in distribution revenue was primarily due to increases in the contractual rates charged under distribution agreements and the timing of contract renewals, which were partially offset by increased declines in the number of subscribers at our cable networks. Advertising revenue was flat compared to the same period in 2018 due to higher prices for advertising units sold, which were offset by audience ratings declines at our networks.
Cable Networks revenue decreased for the nine months ended September 30, 2019 compared to the same period in 2018 due to decreases in advertising revenue, content licensing and other revenue, and distribution revenue. The decrease in advertising and distribution revenue was due to the absence of revenue resulting from our broadcast of the 2018 PyeongChang Olympics. Excluding $378 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, Cable Networks revenue increased by 1.0% for the nine months ended September 30, 2019 compared to the same period in 2018.
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||
Advertising | $ | 809 | $ | 812 | (0.3 | )% | $ | 2,592 | $ | 2,718 | (4.6 | )% | |||||
Advertising, excluding 2018 PyeongChang Olympics | 809 | 812 | (0.3 | ) | 2,592 | 2,576 | 0.6 | ||||||||||
Content licensing revenue and other decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to the timing of content provided under our licensing agreements.
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||
Distribution | $ | 1,681 | $ | 1,655 | 1.6 | % | $ | 5,123 | $ | 5,166 | (0.8 | )% | |||||
Distribution, excluding 2018 PyeongChang Olympics | 1,681 | 1,655 | 1.6 | 5,123 | 4,930 | 3.9 | |||||||||||
Distribution revenue decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to our broadcast of the 2018 PyeongChang Olympics. Excluding $236 million of revenue associated with our broadcast of the 2018 PyeongChang Olympics, distribution revenue increased primarily due to increases in contractual rates charged under distribution agreements and the timing of contract renewals, partially offset by increased declines in the number of subscribers at our cable networks during the quarter.
For the three and nine months ended September 30, 2019, 16% and 15%, respectively, of our Cable Networks segment revenue was generated from our Cable Communications segment. For both the three and nine months ended September 30, 2018, 15% of our 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
Operating costs and expenses decreased for the three months ended September 30, 2019 compared to the same period in 2018 due to decreases in programming and production costs, and advertising, marketing and promotion costs, partially offset by an increase in other operating and administrative costs. The decrease in programming and production costs was primarily due to decreases in studio production costs. The decrease in advertising, marketing and promotion costs was primarily due to lower spending on marketing related to our cable networks programming and our digital properties. The increase in other operating and administrative costs was primarily due to employee-related costs.
Operating costs and expenses decreased for the nine months ended September 30, 2019 compared to the same period in 2018 due to decreases in programming and production costs, and advertising, marketing and promotion costs, partially offset by an increase in other operating and administrative costs. The decrease in programming and production costs was primarily due to the absence of costs associated with our broadcast of the 2018 PyeongChang Olympics. The decrease in advertising, marketing and promotion costs was due to lower spending on marketing related to our cable networks programming and our digital properties. The increase in other operating and administrative costs was primarily due to employee-related costs.
38
Broadcast Television Segment Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Advertising | $ | 1,191 | $ | 1,355 | $ | (164 | ) | (12.1 | )% | ||||
Content licensing | 447 | 538 | (91 | ) | (17.0 | ) | |||||||
Distribution and other | 592 | 559 | 33 | 5.8 | |||||||||
Total revenue | 2,230 | 2,452 | (222 | ) | (9.1 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 1,398 | 1,640 | (242 | ) | (14.8 | ) | |||||||
Other operating and administrative | 373 | 373 | — | (0.2 | ) | ||||||||
Advertising, marketing and promotion | 121 | 118 | 3 | 3.1 | |||||||||
Total operating costs and expenses | 1,892 | 2,131 | (239 | ) | (11.2 | ) | |||||||
Adjusted EBITDA | $ | 338 | $ | 321 | $ | 17 | 5.1 | % | |||||
Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Advertising | $ | 3,837 | $ | 5,107 | $ | (1,270 | ) | (24.9 | )% | ||||
Content licensing | 1,479 | 1,541 | (62 | ) | (4.0 | ) | |||||||
Distribution and other | 1,783 | 1,692 | 91 | 5.3 | |||||||||
Total revenue | 7,099 | 8,340 | (1,241 | ) | (14.9 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 4,344 | 5,604 | (1,260 | ) | (22.5 | ) | |||||||
Other operating and administrative | 1,150 | 1,129 | 21 | 1.8 | |||||||||
Advertising, marketing and promotion | 346 | 362 | (16 | ) | (4.3 | ) | |||||||
Total operating costs and expenses | 5,840 | 7,095 | (1,255 | ) | (17.7 | ) | |||||||
Adjusted EBITDA | $ | 1,259 | $ | 1,245 | $ | 14 | 1.1 | % | |||||
Broadcast Television Segment – Revenue
Broadcast Television revenue decreased for the three months ended September 30, 2019 compared to the same period in 2018 due to decreases in advertising revenue and content licensing revenue, partially offset by an increase in distribution and other revenue. The decrease in advertising revenue was primarily due to the absence of revenue associated with Telemundo’s broadcast of the 2018 FIFA World Cup Russia™. Excluding this event, advertising revenue decreased reflecting continued ratings declines, partially offset by higher pricing for advertising units sold. The decrease in content licensing revenue was primarily due to timing of content provided under our licensing agreements. The increase in distribution and other revenue was primarily due to increases in fees recognized under our retransmission consent agreements.
Broadcast Television revenue decreased for the nine months ended September 30, 2019 compared to the same period in 2018 due to decreases in advertising revenue resulting from our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl, as well as content licensing revenue, which were partially offset by an increase in distribution and other revenue. Excluding $1.2 billion of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl, Broadcast Television revenue decreased 0.7% for the nine months ended September 30, 2019 compared to the same period in 2018.
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||
Advertising | $ | 1,191 | $ | 1,355 | (12.1 | )% | $ | 3,837 | $ | 5,107 | (24.9 | )% | |||||
Advertising, excluding 2018 PyeongChang Olympics and 2018 Super Bowl | 1,191 | 1,355 | (12.1 | ) | 3,837 | 4,026 | (4.7 | ) | |||||||||
Advertising revenue decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to the absence of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl. Excluding $1.1 billion of revenue associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl, advertising revenue decreased due to the absence of revenue associated with Telemundo’s broadcast of the 2018 FIFA World Cup Russia™, as well as the impact of continued declines in audience ratings, partially offset by higher pricing for advertising units sold.
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Content licensing revenue increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to the timing of content provided under our licensing agreements.
Three Months Ended September 30 | Increase/ (Decrease) | Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||
Distribution and other | $ | 592 | $ | 559 | 5.8 | % | $ | 1,783 | $ | 1,692 | 5.3 | % | |||||
Distribution and other, excluding 2018 PyeongChang Olympics | 592 | 559 | 5.8 | 1,783 | 1,580 | 12.8 | |||||||||||
Distribution and other revenue increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to increases in fees recognized under our retransmission consent agreements, which was partially offset by the absence of $112 million of revenue resulting from our broadcast of the 2018 PyeongChang Olympics.
Broadcast Television Segment – Operating Costs and Expenses
Operating costs and expenses decreased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to the decrease in programming and production costs. The decrease in programming and production costs was due to the absence of programming and production costs associated with Telemundo’s broadcast of the 2018 FIFA World Cup Russia™ and lower studio production costs in the current year period compared to the same period in 2018.
Operating costs and expenses decreased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to a decrease in programming and production costs. The decrease in programming and production costs was primarily due to the absence of costs associated with our broadcasts of the 2018 PyeongChang Olympics and the 2018 Super Bowl.
Filmed Entertainment Segment Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Theatrical | $ | 549 | $ | 601 | $ | (52 | ) | (8.8 | )% | ||||
Content licensing | 737 | 719 | 18 | 2.6 | |||||||||
Home entertainment | 185 | 260 | (75 | ) | (28.5 | ) | |||||||
Other | 235 | 239 | (4 | ) | (2.1 | ) | |||||||
Total revenue | 1,706 | 1,819 | (113 | ) | (6.2 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 867 | 914 | (47 | ) | (5.1 | ) | |||||||
Other operating and administrative | 277 | 267 | 10 | 3.0 | |||||||||
Advertising, marketing and promotion | 367 | 424 | (57 | ) | (13.4 | ) | |||||||
Total operating costs and expenses | 1,511 | 1,605 | (94 | ) | (5.9 | ) | |||||||
Adjusted EBITDA | $ | 195 | $ | 214 | $ | (19 | ) | (8.7 | )% | ||||
Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | |||||||||||||
Theatrical | $ | 1,246 | $ | 1,564 | $ | (318 | ) | (20.3 | )% | ||||
Content licensing | 2,266 | 2,100 | 166 | 7.9 | |||||||||
Home entertainment | 681 | 733 | (52 | ) | (7.0 | ) | |||||||
Other | 738 | 779 | (41 | ) | (5.3 | ) | |||||||
Total revenue | 4,931 | 5,176 | (245 | ) | (4.7 | ) | |||||||
Operating costs and expenses | |||||||||||||
Programming and production | 2,201 | 2,492 | (291 | ) | (11.7 | ) | |||||||
Other operating and administrative | 832 | 869 | (37 | ) | (4.3 | ) | |||||||
Advertising, marketing and promotion | 1,156 | 1,260 | (104 | ) | (8.2 | ) | |||||||
Total operating costs and expenses | 4,189 | 4,621 | (432 | ) | (9.3 | ) | |||||||
Adjusted EBITDA | $ | 742 | $ | 555 | $ | 187 | 33.7 | % | |||||
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Filmed Entertainment Segment – Revenue
Filmed Entertainment revenue decreased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to decreases in home entertainment and theatrical revenue, which were partially offset by an increase in content licensing revenue. The decrease in home entertainment revenue was primarily due to higher sales of 2018 releases, including Jurassic World: Fallen Kingdom, compared to the sales of 2019 releases, including Secret Life of Pets 2. The decrease in theatrical revenue was primarily due to the strength and volume of releases in the prior year period, including Jurassic World: Fallen Kingdom and Mamma Mia! Here We Go Again, which were partially offset by releases in our 2019 film slate, including Fast & Furious Presents: Hobbs & Shaw. The increase in content licensing revenue was primarily due to the timing of when content was made available under licensing agreements.
Filmed Entertainment revenue decreased for the nine months ended September 30, 2019 compared to the same period in 2018 due to decreases in theatrical, home entertainment, and other revenue, which were partially offset by an increase in content licensing revenue. The decrease in theatrical revenue was due to the strong performances of several releases in our 2018 film slate, including Jurassic World: Fallen Kingdom and Mamma Mia! Here We Go Again, which were partially offset by releases in our 2019 film slate, including Fast & Furious Presents: Hobbs & Shaw, How to Train Your Dragon: The Hidden World, and Secret Life of Pets 2. The decrease in home entertainment revenue was primarily due to higher sales of 2018 releases, including Jurassic World: Fallen Kingdom, compared to the sales of 2019 releases, including How to Train Your Dragon: The Hidden World, Dr. Seuss’ The Grinch, and Secret Life of Pets 2. The decrease in other revenue was primarily due to the absence of revenue associated with the sale of a business in 2018. The increase in content licensing revenue was primarily due to the timing of when content was made available under licensing agreements.
Filmed Entertainment Segment – Operating Costs and Expenses
Operating costs and expenses decreased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to decreases in advertising, marketing and promotion costs and programming and production costs. The decrease in advertising, marketing and promotion costs was due to higher spending on the marketing of prior period releases. The decrease in programming and production costs was primarily due to higher amortization of film production costs in the prior year period.
Operating costs and expenses decreased for the nine months ended September 30, 2019 compared to the same period in 2018 due to decreases in programming and productions costs, advertising, marketing and promotion costs, and other operating and administrative costs. The decrease in programming and production costs was primarily due to higher amortization of film production costs in the prior year period. The decrease in advertising, marketing and promotion costs was due to a higher spending on the marketing of prior period releases. The decrease in other operating and administrative costs was due to the absence of expenses associated with the sale of a business in 2018 and a reduction in employee-related costs.
Theme Parks Segment Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | $ | 1,631 | $ | 1,528 | $ | 103 | 6.8 | % | |||||
Operating costs and expenses | 900 | 803 | 97 | 12.0 | |||||||||
Adjusted EBITDA | $ | 731 | $ | 725 | $ | 6 | 0.9 | % | |||||
Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | $ | 4,371 | $ | 4,170 | $ | 201 | 4.8 | % | |||||
Operating costs and expenses | 2,552 | 2,381 | 171 | 7.2 | |||||||||
Adjusted EBITDA | $ | 1,819 | $ | 1,789 | $ | 30 | 1.7 | % | |||||
Theme Parks Segment – Revenue
Theme Parks revenue increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily reflecting higher attendance in 2019 due, in part, to natural disasters that negatively impacted attendance in Japan in the prior year periods.
Theme Parks Segment – Operating Costs and Expenses
Theme Parks operating costs and expenses increased for the three and nine months ended September 30, 2019 compared to the same periods in 2018 primarily due to higher costs to operate the parks and attractions.
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Sky Segment Results of Operations
The discussion below compares Sky’s actual results for the three and nine months ended September 30, 2019 to pro forma results for Sky for the three and nine months ended September 30, 2018. The pro forma segment information includes adjustments as if the Sky transaction occurred on January 1, 2017. Our pro forma data is also adjusted for the effects of acquisition accounting and eliminating the costs and expenses directly related to the transaction 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 business. Pro forma amounts are not necessarily indicative of what our results would have been had we operated the Sky business since January 1, 2017, nor of our future results.
Three Months Ended September 30 | ||||||||||||||||
Actual | Pro Forma | Increase/ (Decrease) | Constant Currency Growth(a) | |||||||||||||
(in millions) | 2019 | 2018 | $ | % | % | |||||||||||
Revenue | ||||||||||||||||
Direct-to-consumer | $ | 3,793 | $ | 3,920 | $ | (127 | ) | (3.2 | )% | 1.9 | % | |||||
Content | 315 | 288 | 27 | 9.4 | 15.4 | |||||||||||
Advertising | 446 | 545 | (99 | ) | (18.2 | ) | (13.8 | ) | ||||||||
Total revenue | 4,554 | 4,753 | (199 | ) | (4.2 | ) | 0.9 | |||||||||
Operating costs and expenses | ||||||||||||||||
Programming and production | 2,003 | 1,957 | 46 | 2.4 | 7.6 | |||||||||||
Direct network costs | 419 | 405 | 14 | 3.5 | 9.2 | |||||||||||
Other | 1,233 | 1,741 | (508 | ) | (29.1 | ) | (25.3 | ) | ||||||||
Total operating costs and expenses | 3,655 | 4,103 | (448 | ) | (10.9 | ) | (6.2 | ) | ||||||||
Adjusted EBITDA | $ | 899 | $ | 650 | $ | 249 | 38.3 | % | 46.0 | % | ||||||
Nine Months Ended September 30 | ||||||||||||||||
Actual | Pro Forma | Increase/ (Decrease) | Constant Currency Growth(a) | |||||||||||||
(in millions) | 2019 | 2018 | $ | % | % | |||||||||||
Revenue | ||||||||||||||||
Direct-to-consumer | $ | 11,516 | $ | 12,101 | $ | (585 | ) | (4.8 | )% | 1.1 | % | |||||
Content | 1,061 | 885 | 176 | 20.0 | 26.9 | |||||||||||
Advertising | 1,602 | 1,807 | (205 | ) | (11.3 | ) | (6.0 | ) | ||||||||
Total revenue | 14,179 | 14,793 | (614 | ) | (4.1 | ) | 1.8 | |||||||||
Operating costs and expenses | ||||||||||||||||
Programming and production | 6,543 | 6,440 | 103 | 1.6 | 7.9 | |||||||||||
Direct network costs | 1,218 | 1,206 | 12 | 1.0 | 7.2 | |||||||||||
Other | 4,084 | 5,018 | (934 | ) | (18.6 | ) | (13.7 | ) | ||||||||
Total operating costs and expenses | 11,845 | 12,664 | (819 | ) | (6.5 | ) | (0.7 | ) | ||||||||
Adjusted EBITDA | $ | 2,334 | $ | 2,129 | $ | 205 | 9.6 | % | 16.7 | % | ||||||
All percentages are calculated based on actual amounts. Minor differences may exist due to rounding
(a) | Constant currency growth is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section on page 44 for additional information, including our definition and our use of constant currency, and for a reconciliation of Sky’s constant currency growth rates. |
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Customer Metrics
Net Additions | ||||||||||||
September 30 | Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||
Actual | Pro Forma | Actual | Pro Forma | Actual | Pro Forma | |||||||
(in thousands) | 2019 | 2018 | 2019 | 2018 | 2019 | 2018 | ||||||
Total customer relationships | 23,918 | 23,436 | (99 | ) | 426 | 317 | 571 | |||||
Sky customer relationships represent the number of residential retail customers that subscribe to at least one of Sky’s four primary services of video, high-speed internet, voice and wireless phone service. Commercial retail customers include hotels, bars, workplaces and restaurants with an active subscription for the purpose of providing Sky services to third party customers. We report commercial customers based on the number of commercial agreements per venue in the U.K., a residential equivalent unit based upon the multiple of residential customer revenue in Italy and the number of active venues (bars and restaurants) or rooms (hotels and clinics) in Germany.
Sky Segment – Revenue
Direct-to-Consumer
Direct-to-consumer revenue decreased 3.2% and 4.8% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Excluding the impact of foreign currency, direct-to-consumer revenue increased 1.9% and 1.1% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, primarily due to increases in customer relationships, partially offset by decreases in average revenue per customer relationship.
Content
Content revenue increased 9.4% and 20.0% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Excluding the impact of foreign currency, content revenue increased 15.4% and 26.9% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, reflecting the monetization of our slate of original programming and the wholesaling of sports programming, including exclusive sports rights recently acquired in Italy and Germany.
Advertising
Advertising revenue decreased 18.2% and 11.3% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Excluding the impact of foreign currency, advertising revenue decreased 13.8% and 6.0% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018, reflecting the impact of changes in legislation related to gambling advertisements in the U.K. and Italy that occurred in the third quarter of 2019, as well as overall market weakness.
Sky Segment – Operating Costs and Expenses
Programming and production costs increased 2.4% and 1.6% for the three and nine months ended September 30, 2019, compared to the same periods in 2018. Excluding the impact of foreign currency, programming and production costs increased 7.6% and 7.9% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to sports programming contracts.
Direct network costs increased 3.5% for the three months ended September 30, 2019 and were flat for the nine months ended September 30, 2019 compared to the same periods in 2018. Excluding the impact of foreign currency, direct network costs increased 9.2% and 7.2% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to increases in costs associated with Sky’s wireless phone service as a result of increases in the number of customers receiving the service.
Other expenses decreased 29.1% and 18.6% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018. Excluding the impact of foreign currency, other expenses decreased 25.3% and 13.7% for the three and nine months ended September 30, 2019, respectively, compared to the same periods in 2018 primarily due to contract termination costs and costs related to a settlement in the prior year periods, and a favorable settlement in the current year period.
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Corporate and Other Results of Operations
Three Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | $ | 42 | $ | 73 | $ | (31 | ) | (42.5 | )% | ||||
Operating costs and expenses | 312 | 261 | 51 | 19.3 | |||||||||
Adjustment for Sky transaction-related costs | (33 | ) | — | (33 | ) | NM | |||||||
Adjusted EBITDA | $ | (237 | ) | $ | (188 | ) | $ | (49 | ) | (25.9 | )% | ||
Nine Months Ended September 30 | Increase/ (Decrease) | ||||||||||||
(in millions) | 2019 | 2018 | $ | % | |||||||||
Revenue | $ | 206 | $ | 412 | $ | (206 | ) | (49.9 | )% | ||||
Operating costs and expenses | 1,011 | 978 | 33 | 3.5 | |||||||||
Adjustment for Sky transaction-related costs | (168 | ) | — | (168 | ) | NM | |||||||
Adjusted EBITDA | $ | (637 | ) | $ | (566 | ) | $ | (71 | ) | (12.7 | )% | ||
Corporate and Other – Revenue
Other revenue primarily relates to revenue from Comcast Spectacor, which owns the Philadelphia Flyers and the Wells Fargo Center arena in Philadelphia, Pennsylvania. We sold a controlling interest in our arena management-related businesses in the second quarter of 2018.
Corporate and Other – Operating Costs and Expenses
Operating costs and expenses primarily include overhead, personnel costs, the costs of other business initiatives, such as the development of Peacock, NBCUniversal’s direct-to-consumer streaming service, and operating costs and expenses associated with Comcast Spectacor.
Operating costs and expenses increased for the three months ended September 30, 2019 compared to the same period in 2018 primarily due to transaction-related costs of $33 million directly related to the Sky transaction, including expenses resulting from the replacement of share-based compensation awards and costs related to integration activities, as well as costs associated with the development of Peacock.
Operating costs and expenses increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to transaction-related costs of $168 million directly related to the Sky transaction, including expenses resulting from the replacement of share-based compensation awards and costs related to integration activities, which were partially offset by the sale of a controlling interest in our arena management-related businesses in the second quarter of 2018.
Adjusted EBITDA excludes transaction-related costs directly related to the Sky transaction.
Non-GAAP Financial Measures
Consolidated Adjusted EBITDA
Consolidated Adjusted EBITDA is a non-GAAP financial measure and is the primary basis used to measure the operational strength and performance of our businesses as well as to assist in the evaluation of underlying trends in our businesses. 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. It is also unaffected by our capital and tax structures, and by our investment activities, including the results of entities that we do not consolidate, as our management excludes these results when evaluating our operating performance. Our management and Board of Directors use this financial 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. Additionally, we believe that consolidated Adjusted EBITDA is useful to investors because it is one of the bases for comparing our operating performance with that of other companies in our industries, although our measure of consolidated Adjusted EBITDA may not be directly comparable to similar measures used by other companies.
44
We define consolidated Adjusted EBITDA as net income attributable to Comcast Corporation before net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time, we may exclude from consolidated Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance.
We reconcile consolidated Adjusted EBITDA to net income attributable to Comcast Corporation. This measure should not be considered a substitute for operating income, net income, net income attributable to Comcast Corporation, or net cash provided by operating activities that we have reported in accordance with GAAP.
Reconciliation from Net Income Attributable to Comcast Corporation to Adjusted EBITDA
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income attributable to Comcast Corporation | $ | 3,217 | $ | 2,886 | $ | 9,895 | $ | 9,220 | |||||||
Net income (loss) attributable to noncontrolling interests and redeemable subsidiary preferred stock | 71 | 10 | 228 | 60 | |||||||||||
Income tax expense | 775 | 999 | 2,812 | 2,894 | |||||||||||
Interest expense | 1,167 | 830 | 3,454 | 2,413 | |||||||||||
Investment and other (income) loss, net | 110 | 111 | (511 | ) | (92 | ) | |||||||||
Depreciation | 2,124 | 2,038 | 6,561 | 6,070 | |||||||||||
Amortization | 1,056 | 580 | 3,215 | 1,750 | |||||||||||
Other operating gains | — | (141 | ) | — | (341 | ) | |||||||||
Adjustment for Sky transaction-related costs | 33 | — | 168 | — | |||||||||||
Adjusted EBITDA | $ | 8,553 | $ | 7,313 | $ | 25,822 | $ | 21,974 | |||||||
Constant Currency
Constant currency and constant currency growth rates are non-GAAP financial measures that present our results of operations excluding the estimated effects of foreign currency exchange rate fluctuations. Certain of our businesses, including Sky, have operations outside the United States that are conducted in local currencies. As a result, the comparability of the financial results reported in U.S. dollars is affected by changes in foreign currency exchange rates. In our Sky segment, we use constant currency and constant currency growth rates to evaluate the underlying performance of the business, and we believe it is helpful for investors to present operating results on a comparable basis period over period to evaluate its underlying performance.
Constant currency and constant currency growth rates are calculated by comparing the comparative period results in the prior year adjusted to reflect the average exchange rates from the current year period rather than the actual exchange rates in effect during the respective prior year periods.
Reconciliation of Sky Constant Currency Growth Rates
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||||||||
Actual | Constant Currency | Constant Currency Growth | Actual | Constant Currency | Constant Currency Growth | ||||||||||||||||
(in millions) | 2019 | 2018 | % | 2019 | 2018 | % | |||||||||||||||
Revenue | |||||||||||||||||||||
Direct-to-consumer | $ | 3,793 | $ | 3,722 | 1.9 | % | $ | 11,516 | $ | 11,395 | 1.1 | % | |||||||||
Content | 315 | 273 | 15.4 | 1,061 | 835 | 26.9 | |||||||||||||||
Advertising | 446 | 517 | (13.8 | ) | 1,602 | 1,701 | (6.0 | ) | |||||||||||||
Total revenue | 4,554 | 4,512 | 0.9 | 14,179 | 13,931 | 1.8 | |||||||||||||||
Operating costs and expenses | |||||||||||||||||||||
Programming and production | 2,003 | 1,859 | 7.6 | 6,543 | 6,057 | 7.9 | |||||||||||||||
Direct network costs | 419 | 384 | 9.2 | 1,218 | 1,137 | 7.2 | |||||||||||||||
Other | 1,233 | 1,652 | (25.3 | ) | 4,084 | 4,732 | (13.7 | ) | |||||||||||||
Total operating costs and expenses | 3,655 | 3,895 | (6.2 | ) | 11,845 | 11,926 | (0.7 | ) | |||||||||||||
Adjusted EBITDA | $ | 899 | $ | 617 | 46.0 | % | $ | 2,334 | $ | 2,005 | 16.7 | % | |||||||||
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Liquidity and Capital Resources
Our businesses generate significant cash flows from operating activities. We believe that we will be able to continue to meet our current and long-term liquidity and capital requirements, including fixed charges, through our cash flows from operating activities; existing cash, cash equivalents and investments; available borrowings under our existing credit facilities; and our ability to obtain future external financing. We anticipate that we will continue to use a substantial portion of our cash flows in repaying our debt obligations, funding our capital expenditures, investing in business opportunities and returning capital to shareholders.
Operating Activities
Components of Net Cash Provided by Operating Activities
Nine Months Ended September 30 | |||||||
(in millions) | 2019 | 2018 | |||||
Operating income | $ | 15,878 | $ | 14,495 | |||
Depreciation, amortization and other operating gains | 9,776 | 7,479 | |||||
Noncash share-based compensation | 790 | 607 | |||||
Changes in operating assets and liabilities | (1,670 | ) | (511 | ) | |||
Payments of interest | (3,167 | ) | (2,240 | ) | |||
Payments of income taxes | (2,490 | ) | (1,533 | ) | |||
Other | 345 | 210 | |||||
Net cash provided by operating activities | $ | 19,462 | $ | 18,507 | |||
The variance in changes in operating assets and liabilities for the nine months ended September 30, 2019 compared to the same period in 2018 was primarily due to the timing of film and television costs at NBCUniversal and Sky, our broadcast of the 2018 Super Bowl in the prior year period, partially offset by the timing of collection on our receivables, our broadcast of the 2018 PyeongChang Olympics in the prior year period and a reduction in Cable Communications wireless inventory.
Investing Activities
Net cash used in investing activities for the nine months ended September 30, 2019 consisted primarily of capital expenditures, purchases of investments, cash paid for intangible assets and the construction of Universal Beijing Resort. Capital expenditures increased for the nine months ended September 30, 2019 compared to the same period in 2018 primarily due to the inclusion of spending at Sky and an increase in spending by our Theme Parks segment, partially offset by a decrease in spending by our Cable Communications segment due to lower spending on scalable infrastructure and customer premise equipment. Purchases of investments for the nine months ended September 30, 2019 consisted primarily of our cash capital contributions of $903 million to Hulu and $475 million to Atairos.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2019 consisted primarily of repayments of debt, dividend payments and repurchases of common stock under our employee plans, partially offset by proceeds from a collateralized obligation. In August 2019, we received proceeds of $5.2 billion under a term loan facility, which is fully secured, primarily by the minimum guaranteed proceeds from Disney under the put/call provisions related to our investment in Hulu. The proceeds from the collateralized obligation were used to redeem $3.4 billion of 5.15% senior notes due 2020, and to repay $906 million of our sterling-denominated term loan and our outstanding commercial paper. See Note 9 to Comcast’s condensed consolidated financial statements and Note 8 to NBCUniversal’s condensed consolidated financial statements for additional information.
We have made, and may from time to time in the future make, optional repayments on our debt obligations, which may include repayments of our term loans and repurchases or exchanges of our outstanding public notes and debentures, depending on various factors, such as market conditions. See Notes 5 and 6 to Comcast’s condensed consolidated financial statements and Notes 4 and 5 to NBCUniversal’s condensed consolidated financial statements for additional information on our financing activities, including details of our debt repayments and borrowings.
Available Borrowings Under Credit Facilities
We also maintain significant availability under our commercial paper programs and revolving credit facilities to meet our short-term liquidity requirements.
46
Commercial Paper Programs
For the nine months ended September 30, 2019, we made net repayments of $673 million under our commercial paper programs. As of September 30, 2019, we had no commercial paper outstanding.
Revolving Credit Facilities
For the nine months ended September 30, 2019, we made net repayments of $615 million under Sky’s £1 billion revolving credit facility, which was terminated in February 2019. In June 2019, we amended the terms of our Comcast and NBCUniversal Enterprise revolving credit facilities to extend both facilities’ expiration dates from May 26, 2021 to May 26, 2022. As of September 30, 2019, there were no amounts outstanding under our revolving credit facilities. Amounts available under our revolving credit facilities, net of amounts outstanding under our commercial paper programs and outstanding letters of credit and bank guarantees, totaled $9.2 billion.
Share Repurchases and Dividends
Effective January 1, 2017, our Board of Directors increased our share repurchase program authorization to $12 billion, which does not have an expiration date. Under the authorization, we may repurchase shares in the open market or in private transactions. We have paused our share repurchase program for 2019 in order to accelerate the reduction of indebtedness we incurred in connection with the acquisition of Sky and no common stock share repurchases were made under this authorization for the nine months ended September 30, 2019.
We paid $431 million for the nine months ended September 30, 2019 related to employee taxes associated with the administration of our share-based compensation plans.
In January 2019, our Board of Directors approved a 10% increase in our dividend to $0.84 per share on an annualized basis. In July 2019, our Board of Directors approved our third quarter dividend of $0.21 per share to be paid in October 2019. We expect to continue to pay quarterly dividends, although each dividend is subject to approval by our Board of Directors. On July 24, 2019, we paid dividends totaling $955 million.
Critical Accounting Judgments and Estimates
The preparation of our condensed consolidated financial statements requires us to make estimates that affect the reported amounts of assets, liabilities, revenue and expenses, and the related disclosure of contingent assets and contingent liabilities. We base our judgments on our historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making estimates about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
We believe our judgments and related estimates associated with the valuation and impairment testing of our cable franchise rights and accounting for film and television costs are critical in the preparation of our condensed consolidated financial statements. We performed our annual impairment testing of our cable franchise rights as of July 1, 2019 and no impairment charge was required.
For a more complete discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our condensed consolidated financial statements, please refer to our Management’s Discussion and Analysis of Financial Condition and Results of Operations in our 2018 Annual Report on Form 10-K.
Recent Accounting Pronouncements
See Note 7 to Comcast’s condensed consolidated financial statements and Note 6 to NBCUniversal’s condensed consolidated financial statements for additional information related to recent accounting pronouncements.
ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We have evaluated the information required under this item that was disclosed in our 2018 Annual Report on Form 10-K and there have been no significant changes to this information.
ITEM 4: CONTROLS AND PROCEDURES
Comcast Corporation
Conclusions regarding disclosure controls and procedures
Our principal executive and principal financial officers, after evaluating the effectiveness of Comcast’s disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this report, have
47
concluded that, based on the evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, Comcast’s disclosure controls and procedures were effective.
Changes in internal control over financial reporting
There were no changes in Comcast’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during Comcast’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, Comcast’s internal control over financial reporting, except as noted below. On October 9, 2018, we acquired a controlling interest in Sky. See Note 6 to Comcast’s condensed consolidated financial statements for additional information. In connection with the integration of Sky, we are in the process of analyzing and evaluating our internal controls over financial reporting. This process may result in additions or changes to our internal control over financial reporting.
NBCUniversal Media, LLC
Conclusions regarding disclosure controls and procedures
Our principal executive and principal financial officers, after evaluating the effectiveness of NBCUniversal’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this report, have concluded that, based on the evaluation of these controls and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, NBCUniversal’s disclosure controls and procedures were effective.
Changes in internal control over financial reporting
There were no changes in NBCUniversal’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during NBCUniversal’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, NBCUniversal’s internal control over financial reporting.
48
PART II: OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
Refer to Note 12 to Comcast’s condensed consolidated financial statements included in this Quarterly Report on Form 10-Q for a discussion of legal proceedings.
NBCUniversal is subject to legal proceedings and claims that arise in the ordinary course of its business and does not expect the final disposition of these matters to have a material adverse effect on its results of operations, cash flows or financial condition, although any such matters could be time-consuming and costly and could injure its reputation.
ITEM 1A: RISK FACTORS
There have been no significant changes from the risk factors previously disclosed in Item 1A of our 2018 Annual Report on Form 10-K.
ITEM 6: EXHIBITS
Comcast
Exhibit No. | Description | |
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | The following financial statements from Comcast Corporation’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019, filed with the Securities and Exchange Commission on October 24, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statement of Income; (ii) the Condensed Consolidated Statement of Comprehensive Income; (iii) the Condensed Consolidated Statement of Cash Flows; (iv) the Condensed Consolidated Balance Sheet; (v) the Condensed Consolidated Statement of Changes in Equity; and (vi) the Notes to Condensed Consolidated Financial Statements. | |
NBCUniversal
Exhibit No. | Description | |
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | ||
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | ||
101 | The following financial statements from NBCUniversal Media, LLC’s Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2019, filed with the Securities and Exchange Commission on October 24, 2019, formatted in XBRL (eXtensible Business Reporting Language): (i) the Condensed Consolidated Statement of Income; (ii) the Condensed Consolidated Statement of Comprehensive Income; (iii) the Condensed Consolidated Statement of Cash Flows; (iv) the Condensed Consolidated Balance Sheet; (v) the Condensed Consolidated Statement of Changes in Equity; and (vi) the Notes to Condensed Consolidated Financial Statements. | |
49
SIGNATURES
Comcast
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
COMCAST CORPORATION | ||
By: | /s/ DANIEL C. MURDOCK | |
Daniel C. Murdock Senior Vice President, Chief Accounting Officer and Controller (Principal Accounting Officer) | ||
Date: October 24, 2019
NBCUniversal
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
NBCUNIVERSAL MEDIA, LLC | ||
By: | /s/ DANIEL C. MURDOCK | |
Daniel C. Murdock Senior Vice President (Principal Accounting Officer) | ||
Date: October 24, 2019
50
NBCUniversal Media, LLC Financial Statements
Index | Page |
51
Condensed Consolidated Statement of Income
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Revenue | $ | 8,294 | $ | 8,625 | $ | 24,866 | $ | 26,468 | |||||||
Costs and Expenses: | |||||||||||||||
Programming and production | 3,531 | 3,896 | 10,182 | 11,947 | |||||||||||
Other operating and administrative | 2,013 | 1,959 | 5,943 | 5,886 | |||||||||||
Advertising, marketing and promotion | 661 | 704 | 1,994 | 2,124 | |||||||||||
Depreciation | 259 | 250 | 755 | 750 | |||||||||||
Amortization | 278 | 264 | 824 | 827 | |||||||||||
Other operating gains | — | (141 | ) | — | (141 | ) | |||||||||
Total costs and expenses | 6,742 | 6,932 | 19,698 | 21,393 | |||||||||||
Operating income | 1,552 | 1,693 | 5,168 | 5,075 | |||||||||||
Interest expense | (348 | ) | (134 | ) | (601 | ) | (394 | ) | |||||||
Investment and other income (loss), net | 169 | (205 | ) | 449 | (377 | ) | |||||||||
Income before income taxes | 1,373 | 1,354 | 5,016 | 4,304 | |||||||||||
Income tax expense | (63 | ) | (112 | ) | (239 | ) | (291 | ) | |||||||
Net income | 1,310 | 1,242 | 4,777 | 4,013 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests | 54 | 11 | 166 | 22 | |||||||||||
Net income attributable to NBCUniversal | $ | 1,256 | $ | 1,231 | $ | 4,611 | $ | 3,991 | |||||||
See accompanying notes to condensed consolidated financial statements.
52
Condensed Consolidated Statement of Comprehensive Income
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Net income | $ | 1,310 | $ | 1,242 | $ | 4,777 | $ | 4,013 | |||||||
Deferred gains (losses) on cash flow hedges, net | — | (2 | ) | (3 | ) | (4 | ) | ||||||||
Employee benefit obligations, net | (4 | ) | (4 | ) | (9 | ) | (11 | ) | |||||||
Currency translation adjustments, net | (31 | ) | (133 | ) | 16 | (144 | ) | ||||||||
Comprehensive income | 1,275 | 1,103 | 4,781 | 3,854 | |||||||||||
Less: Net income (loss) attributable to noncontrolling interests | 54 | 11 | 166 | 22 | |||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | (23 | ) | (20 | ) | (25 | ) | (45 | ) | |||||||
Comprehensive income attributable to NBCUniversal | $ | 1,244 | $ | 1,112 | $ | 4,640 | $ | 3,877 | |||||||
See accompanying notes to condensed consolidated financial statements.
53
Condensed Consolidated Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30 | |||||||
(in millions) | 2019 | 2018 | |||||
Operating Activities | |||||||
Net income | $ | 4,777 | $ | 4,013 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation, amortization and other operating gains | 1,579 | 1,436 | |||||
Net (gain) loss on investment activity and other | (12 | ) | 497 | ||||
Deferred income taxes | (13 | ) | 21 | ||||
Changes in operating assets and liabilities, net of effects of acquisitions and divestitures: | |||||||
Current and noncurrent receivables, net | 284 | 90 | |||||
Film and television costs, net | (656 | ) | 69 | ||||
Accounts payable and accrued expenses related to trade creditors | (180 | ) | (123 | ) | |||
Other operating assets and liabilities | (367 | ) | (165 | ) | |||
Net cash provided by operating activities | 5,412 | 5,838 | |||||
Investing Activities | |||||||
Capital expenditures | (1,431 | ) | (1,135 | ) | |||
Cash paid for intangible assets | (199 | ) | (374 | ) | |||
Note receivable from Comcast | (3,238 | ) | (1,522 | ) | |||
Construction of Universal Beijing Resort | (736 | ) | (257 | ) | |||
Purchases of investments | (1,017 | ) | (450 | ) | |||
Other | (5 | ) | (45 | ) | |||
Net cash provided by (used in) investing activities | (6,626 | ) | (3,783 | ) | |||
Financing Activities | |||||||
Proceeds from borrowings | 572 | 485 | |||||
Proceeds from collateralized obligation | 5,175 | — | |||||
Repurchases and repayments of debt | (2,739 | ) | (387 | ) | |||
Proceeds from (repayments of) borrowings from Comcast, net | (79 | ) | (1,791 | ) | |||
Distributions to member | (1,775 | ) | (1,228 | ) | |||
Distributions to noncontrolling interests | (183 | ) | (163 | ) | |||
Other | (44 | ) | (147 | ) | |||
Net cash provided by (used in) financing activities | 927 | (3,231 | ) | ||||
Increase (decrease) in cash, cash equivalents and restricted cash | (287 | ) | (1,176 | ) | |||
Cash, cash equivalents and restricted cash, beginning of period | 1,464 | 2,377 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 1,177 | $ | 1,201 | |||
See accompanying notes to condensed consolidated financial statements.
54
Condensed Consolidated Balance Sheet
(Unaudited)
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Assets | |||||||
Current Assets: | |||||||
Cash and cash equivalents | $ | 1,157 | $ | 1,444 | |||
Receivables, net | 7,040 | 7,293 | |||||
Programming rights | 1,461 | 1,323 | |||||
Notes receivable from Comcast | 4,192 | 2,054 | |||||
Other current assets | 1,126 | 1,133 | |||||
Total current assets | 14,976 | 13,247 | |||||
Film and television costs | 7,776 | 7,292 | |||||
Investments | 1,993 | 1,680 | |||||
Investment securing collateralized obligation | 816 | — | |||||
Note receivable from Comcast | 1,101 | — | |||||
Property and equipment, net of accumulated depreciation of $5,639 and $4,994 | 14,853 | 13,189 | |||||
Goodwill | 24,128 | 24,118 | |||||
Intangible assets, net of accumulated amortization of $9,420 and $8,590 | 13,100 | 13,666 | |||||
Other noncurrent assets, net | 3,444 | 1,822 | |||||
Total assets | $ | 82,187 | $ | 75,014 | |||
Liabilities and Equity | |||||||
Current Liabilities: | |||||||
Accounts payable and accrued expenses related to trade creditors | $ | 1,944 | $ | 1,933 | |||
Accrued participations and residuals | 1,615 | 1,808 | |||||
Program obligations | 608 | 965 | |||||
Deferred revenue | 1,820 | 1,118 | |||||
Accrued expenses and other current liabilities | 2,052 | 2,195 | |||||
Notes payable to Comcast | 91 | 54 | |||||
Current portion of long-term debt | 246 | 151 | |||||
Total current liabilities | 8,376 | 8,224 | |||||
Long-term debt, less current portion | 10,574 | 12,731 | |||||
Collateralized obligation | 5,165 | — | |||||
Accrued participations, residuals and program obligations | 1,674 | 1,712 | |||||
Other noncurrent liabilities | 6,451 | 5,177 | |||||
Commitments and contingencies | |||||||
Redeemable noncontrolling interests | 442 | 389 | |||||
Equity: | |||||||
Member’s capital | 48,209 | 45,618 | |||||
Accumulated other comprehensive income (loss) | 283 | 254 | |||||
Total NBCUniversal member’s equity | 48,492 | 45,872 | |||||
Noncontrolling interests | 1,013 | 909 | |||||
Total equity | 49,505 | 46,781 | |||||
Total liabilities and equity | $ | 82,187 | $ | 75,014 | |||
See accompanying notes to condensed consolidated financial statements.
55
Condensed Consolidated Statement of Changes in Equity
(Unaudited)
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||
Redeemable Noncontrolling Interests | |||||||||||||
Balance, beginning of period | $ | 401 | $ | 391 | $ | 389 | $ | 409 | |||||
Contributions from (distributions to) noncontrolling interests, net | (13 | ) | (10 | ) | (51 | ) | (43 | ) | |||||
Other | 3 | — | 3 | (5 | ) | ||||||||
Net income (loss) | 51 | 6 | 101 | 26 | |||||||||
Balance, end of period | $ | 442 | $ | 387 | $ | 442 | $ | 387 | |||||
Member’s Capital | |||||||||||||
Balance, beginning of period | $ | 47,529 | $ | 43,777 | $ | 45,618 | $ | 42,148 | |||||
Cumulative effects of adoption of accounting standards | — | — | — | (232 | ) | ||||||||
Distributions to member | (576 | ) | (238 | ) | (2,020 | ) | (1,228 | ) | |||||
Other | — | 1 | — | 92 | |||||||||
Net income (loss) | 1,256 | 1,231 | 4,611 | 3,991 | |||||||||
Balance, end of period | $ | 48,209 | $ | 44,771 | $ | 48,209 | $ | 44,771 | |||||
Accumulated Other Comprehensive Income (Loss) | |||||||||||||
Balance, beginning of period | $ | 295 | $ | 218 | $ | 254 | $ | (20 | ) | ||||
Cumulative effects of adoption of accounting standards | — | — | — | 232 | |||||||||
Other comprehensive income (loss) | (12 | ) | (120 | ) | 29 | (114 | ) | ||||||
Balance, end of period | $ | 283 | $ | 98 | $ | 283 | $ | 98 | |||||
Noncontrolling Interests | |||||||||||||
Balance, beginning of period | $ | 988 | $ | 1,090 | $ | 909 | $ | 913 | |||||
Contributions from (distributions to) noncontrolling interests, net | 51 | (41 | ) | 76 | 272 | ||||||||
Other comprehensive income (loss) | (23 | ) | (20 | ) | (25 | ) | (45 | ) | |||||
Other | (6 | ) | (191 | ) | (12 | ) | (293 | ) | |||||
Net income (loss) | 3 | 5 | 65 | (4 | ) | ||||||||
Balance, end of period | $ | 1,013 | $ | 843 | $ | 1,013 | $ | 843 | |||||
Total equity | $ | 49,505 | $ | 45,712 | $ | 49,505 | $ | 45,712 | |||||
See accompanying notes to condensed consolidated financial statements.
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1: Condensed Consolidated Financial Statements
Basis of Presentation
Unless indicated otherwise, throughout these notes to the condensed consolidated financial statements, we refer to NBCUniversal and its consolidated subsidiaries as “we,” “us” and “our.” We have prepared these unaudited condensed consolidated financial statements based on SEC rules that permit reduced disclosure for interim periods. These financial statements include all adjustments that are necessary for a fair presentation of our consolidated results of operations, cash flows and financial condition for the periods shown, including normal, recurring accruals and other items. The consolidated results of operations for the interim periods presented are not necessarily indicative of results for the full year.
The year-end condensed consolidated balance sheet was derived from audited financial statements but does not include all disclosures required by generally accepted accounting principles in the United States (“GAAP”). For a more complete discussion of our accounting policies and certain other information, refer to our consolidated financial statements included in our 2018 Annual Report on Form 10-K and the notes within this Form 10-Q.
See Note 6 for a discussion of the effects of the adoption of new accounting pronouncements on our condensed consolidated financial statements.
Note 2: Segment Information
We present our operations in four reportable business segments:
Our Cable Networks segment consists primarily of our national cable networks that provide a variety of entertainment, news and information, and sports content; our regional sports and news networks; our international cable networks; our cable television studio production operations and various digital properties.
Our Broadcast Television segment consists primarily of the NBC and Telemundo broadcast networks, our NBC and Telemundo owned local broadcast television stations, the NBC Universo national cable network, our broadcast television studio production operations, and various digital properties.
Our Filmed Entertainment segment consists primarily of the operations of Universal Pictures, which produces, acquires, markets and distributes filmed entertainment worldwide; our films are also produced under the Illumination, DreamWorks Animation and Focus Features names.
Our Theme Parks segment consists primarily of our Universal theme parks in Orlando, Florida; Hollywood, California; and Osaka, Japan. In addition, along with a consortium of Chinese state-owned companies, we are developing a Universal theme park and resort in Beijing, China.
We use Adjusted EBITDA to evaluate the profitability of our operating segments and the components of net income attributable to NBCUniversal excluded from Adjusted EBITDA are not separately evaluated. To be consistent with our current management reporting presentation, 2018 operating results were reclassified related to certain NBCUniversal businesses now presented in Headquarters and Other. Our financial data by business segment is presented in the tables below.
Three Months Ended September 30, 2019 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(c) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Networks | $ | 2,771 | $ | 955 | $ | 184 | $ | 9 | $ | 4 | |||||
Broadcast Television | 2,230 | 338 | 36 | 36 | 3 | ||||||||||
Filmed Entertainment | 1,706 | 195 | 21 | 5 | 5 | ||||||||||
Theme Parks | 1,631 | 731 | 182 | 400 | 8 | ||||||||||
Headquarters and Other(a) | 21 | (133 | ) | 114 | 55 | 43 | |||||||||
Eliminations(b) | (65 | ) | 3 | — | — | — | |||||||||
Total | $ | 8,294 | $ | 2,089 | $ | 537 | $ | 505 | $ | 63 | |||||
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Three Months Ended September 30, 2018 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(c) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Networks | $ | 2,850 | $ | 959 | $ | 180 | $ | 11 | $ | 6 | |||||
Broadcast Television | 2,452 | 321 | 32 | 37 | — | ||||||||||
Filmed Entertainment | 1,819 | 214 | 26 | 9 | 6 | ||||||||||
Theme Parks | 1,528 | 725 | 170 | 269 | 23 | ||||||||||
Headquarters and Other(a) | 49 | (152 | ) | 106 | 79 | 43 | |||||||||
Eliminations(b) | (73 | ) | (1 | ) | — | — | — | ||||||||
Total | $ | 8,625 | $ | 2,066 | $ | 514 | $ | 405 | $ | 78 | |||||
Nine Months Ended September 30, 2019 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(c) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Networks | $ | 8,586 | $ | 3,418 | $ | 549 | $ | 21 | $ | 10 | |||||
Broadcast Television | 7,099 | 1,259 | 115 | 86 | 9 | ||||||||||
Filmed Entertainment | 4,931 | 742 | 60 | 13 | 16 | ||||||||||
Theme Parks | 4,371 | 1,819 | 514 | 1,172 | 44 | ||||||||||
Headquarters and Other(a) | 117 | (492 | ) | 341 | 139 | 120 | |||||||||
Eliminations(b) | (238 | ) | 1 | — | — | — | |||||||||
Total | $ | 24,866 | $ | 6,747 | $ | 1,579 | $ | 1,431 | $ | 199 | |||||
Nine Months Ended September 30, 2018 | |||||||||||||||
(in millions) | Revenue | Adjusted EBITDA(c) | Depreciation and Amortization | Capital Expenditures | Cash Paid for Intangible Assets | ||||||||||
Cable Networks(d) | $ | 8,881 | $ | 3,389 | $ | 548 | $ | 22 | $ | 15 | |||||
Broadcast Television(d) | 8,340 | 1,245 | 106 | 99 | 75 | ||||||||||
Filmed Entertainment | 5,176 | 555 | 117 | 24 | 20 | ||||||||||
Theme Parks | 4,170 | 1,789 | 492 | 811 | 158 | ||||||||||
Headquarters and Other(a) | 157 | (464 | ) | 314 | 179 | 106 | |||||||||
Eliminations(b)(d) | (256 | ) | (3 | ) | — | — | — | ||||||||
Total | $ | 26,468 | $ | 6,511 | $ | 1,577 | $ | 1,135 | $ | 374 | |||||
(a) | Headquarters and Other activities include costs associated with overhead, allocations, personnel costs and headquarter initiatives. |
(b) | Included in Eliminations are transactions that our segments enter into with one another, which consisted primarily of the licensing of film and television content from our Filmed Entertainment and Broadcast Television segments to our Cable Networks segment; for segment reporting, this revenue is recognized as the programming rights asset for the licensed content is amortized based on third party revenue. |
(c) | We use Adjusted EBITDA as the measure of profit or loss for our operating segments. Adjusted EBITDA is defined as net income attributable to NBCUniversal before net income (loss) attributable to noncontrolling interests, income tax expense, investment and other income (loss), net, interest expense, depreciation and amortization expense, and other operating gains and losses (such as impairment charges related to fixed and intangible assets and gains or losses on the sale of long-lived assets), if any. From time to time, we may exclude from Adjusted EBITDA the impact of certain events, gains, losses or other charges (such as significant legal settlements) that affect the period-to-period comparability of our operating performance. Our reconciliation of the aggregate amount of Adjusted EBITDA for our reportable segments to consolidated income before income taxes is presented in the table below. |
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Adjusted EBITDA | $ | 2,089 | $ | 2,066 | $ | 6,747 | $ | 6,511 | |||||||
Depreciation | (259 | ) | (250 | ) | (755 | ) | (750 | ) | |||||||
Amortization | (278 | ) | (264 | ) | (824 | ) | (827 | ) | |||||||
Other operating gains | — | 141 | — | 141 | |||||||||||
Interest expense | (348 | ) | (134 | ) | (601 | ) | (394 | ) | |||||||
Investment and other income (loss), net | 169 | (205 | ) | 449 | (377 | ) | |||||||||
Income before income taxes | $ | 1,373 | $ | 1,354 | $ | 5,016 | $ | 4,304 | |||||||
(d) | The revenue and operating costs and expenses associated with our broadcast of the 2018 PyeongChang Olympics were reported in our Cable Networks and Broadcast Television segments. The revenue and operating costs and expenses associated with our broadcast of the 2018 Super Bowl were reported in our Broadcast Television segment. Included in Eliminations are transactions relating to these events that our Broadcast Television and Cable Networks segments entered into with our other segments. |
58
Note 3: Revenue
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Distribution | $ | 1,681 | $ | 1,655 | $ | 5,123 | $ | 5,166 | |||||||
Advertising | 809 | 812 | 2,592 | 2,718 | |||||||||||
Content licensing and other | 281 | 383 | 871 | 997 | |||||||||||
Total Cable Networks | 2,771 | 2,850 | 8,586 | 8,881 | |||||||||||
Advertising | 1,191 | 1,355 | 3,837 | 5,107 | |||||||||||
Content licensing | 447 | 538 | 1,479 | 1,541 | |||||||||||
Distribution and other | 592 | 559 | 1,783 | 1,692 | |||||||||||
Total Broadcast Television | 2,230 | 2,452 | 7,099 | 8,340 | |||||||||||
Theatrical | 549 | 601 | 1,246 | 1,564 | |||||||||||
Content licensing | 737 | 719 | 2,266 | 2,100 | |||||||||||
Home entertainment | 185 | 260 | 681 | 733 | |||||||||||
Other | 235 | 239 | 738 | 779 | |||||||||||
Total Filmed Entertainment | 1,706 | 1,819 | 4,931 | 5,176 | |||||||||||
Total Theme Parks | 1,631 | 1,528 | 4,371 | 4,170 | |||||||||||
Headquarters and Other | 21 | 49 | 117 | 157 | |||||||||||
Eliminations(a) | (65 | ) | (73 | ) | (238 | ) | (256 | ) | |||||||
Total revenue | $ | 8,294 | $ | 8,625 | $ | 24,866 | $ | 26,468 | |||||||
(a) | Included in Eliminations are transactions that our segments enter into with one another. See Note 2 for a description of these transactions. |
We operate primarily in the United States, but also in select international markets primarily in Europe and Asia. The table below summarizes revenue by geographic location.
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
United States | $ | 6,382 | $ | 6,758 | $ | 19,674 | $ | 20,945 | |||||||
Foreign | 1,912 | 1,867 | 5,192 | 5,523 | |||||||||||
Total revenue | $ | 8,294 | $ | 8,625 | $ | 24,866 | $ | 26,468 | |||||||
No single customer accounted for a significant amount of revenue in any period presented.
Condensed Consolidated Balance Sheet
The following tables summarize our accounts receivable and other balances that are not separately presented in our condensed consolidated balance sheet that relate to the recognition of revenue and collection of the related cash.
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Receivables, gross | $ | 7,139 | $ | 7,392 | |||
Less: Allowance for doubtful accounts | 99 | 99 | |||||
Receivables, net | $ | 7,040 | $ | 7,293 | |||
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Noncurrent receivables, net (included in other noncurrent assets, net) | $ | 1,097 | $ | 1,180 | |||
Noncurrent deferred revenue (included in other noncurrent liabilities) | $ | 422 | $ | 481 | |||
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Note 4: Long-Term Debt
As of September 30, 2019, our debt, excluding our revolving credit agreement with Comcast, had a carrying value of $10.8 billion and an estimated fair value of $11.8 billion. The estimated fair value of our publicly traded debt was primarily based on Level 1 inputs that use quoted market values for the debt. The estimated fair value of debt for which there are no quoted market prices was based on Level 2 inputs that use interest rates available to us for debt with similar terms and remaining maturities.
Debt Borrowings and Repayments
For the nine months ended September 30, 2019, we had borrowings of $572 million primarily related to the Universal Beijing Resort term loans.
For the nine months ended September 30, 2019, we made repayments of $2.7 billion including the early redemptions of $2.0 billion of senior notes due 2020 and $610 million of notes due 2049 to Comcast. The early redemptions were funded using proceeds from our collateralized obligation (see Note 8) and were accounted for as debt extinguishments, resulting in a charge of $213 million to interest expense in the third quarter of 2019, of which $178 million related to the notes due to Comcast.
Guarantee Structure
We, Comcast and a 100% owned cable holding company subsidiary of Comcast (“CCCL Parent”) fully and unconditionally guarantee each other’s debt securities, including the $7.6 billion Comcast revolving credit facility due 2022. As of September 30, 2019, $80.6 billion principal amount of outstanding debt securities of Comcast and CCCL Parent were subject to the cross-guarantee structure.
We do not, however, guarantee the obligations of NBCUniversal Enterprise with respect to its $1.5 billion outstanding debt securities, including its senior notes, revolving credit facility, commercial paper program nor its $725 million liquidation preference of Series A cumulative preferred stock.
The Universal Studios Japan term loans are not subject to the cross-guarantee structure, however they have a separate guarantee from Comcast.
The Universal Beijing Resort term loans are not guaranteed.
Note 5: Significant Transactions
Universal Beijing Resort
We entered into an agreement with a consortium of Chinese state-owned companies to build and operate a Universal theme park and resort in Beijing, China (“Universal Beijing Resort”). We own a 30% interest in Universal Beijing Resort and the construction is being funded through a combination of debt financing and equity contributions from the investors in accordance with their equity interests. The debt financing, which is being provided by a syndicate of Chinese financial institutions, contains certain financial and operating covenants and a maximum borrowing limit of ¥26.6 billion RMB (approximately $4 billion). The debt financing is secured by the assets of Universal Beijing Resort and the equity interests of the investors. As of September 30, 2019, Universal Beijing Resort had $1 billion principal amount of term loans outstanding under the debt financing agreements.
We have concluded that Universal Beijing Resort is a variable interest entity based on its governance structure, and we consolidate it because we have the power to direct activities that most significantly impact its economic performance. There are no liquidity arrangements, guarantees or other financial commitments between us and Universal Beijing Resort, and therefore our maximum risk of financial loss is our 30% interest. Universal Beijing Resort’s results of operations are reported in our Theme Parks segment. Our condensed consolidated statement of cash flows includes the costs of construction and related borrowings in the “construction of Universal Beijing Resort” and “proceeds from borrowings” captions, respectively, and equity contributions from our investing partner are included in other financing activities.
In March 2018, Universal Beijing Resort received initial equity investments through a combination of cash and noncash contributions from the investors. As of September 30, 2019, our condensed consolidated balance sheet included assets, primarily property and equipment, and liabilities, including the term loans, of Universal Beijing Resort totaling $2.4 billion and $1.7 billion, respectively.
Note 6: Recent Accounting Pronouncements
Leases
In February 2016, the Financial Accounting Standards Board (“FASB”) updated the accounting guidance related to leases. The most significant change in the updated accounting guidance requires lessees to recognize lease assets and liabilities on the balance sheet for all operating leases with the exception of short-term leases. The standard also expands the disclosures regarding the amount, timing and uncertainty of cash flows arising from leases. For a lessee, the recognition, measurement and presentation of
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expenses and cash flows arising from a lease did not significantly change from previous guidance. We adopted the updated guidance on January 1, 2019 on a prospective basis and as a result, prior period amounts were not adjusted to reflect the impacts of the updated guidance. In addition, as permitted under the transition guidance within the new standard, prior scoping and classification conclusions were carried forward for leases existing as of the adoption date.
Upon adoption, we recorded approximately $1.7 billion and $1.8 billion of operating lease assets and liabilities, respectively, which includes the impact of fair value adjustments, prepaid rent and lease incentives. The adoption of the updated accounting guidance did not impact our recognition of finance leases, which were previously described as capital leases. As of the date of adoption, our liabilities for finance leases were $332 million, which were recorded in long-term debt, and the related assets were recorded in property and equipment, net. Our finance leases were not considered material for further disclosure. The adoption of the new accounting guidance did not have a material impact on our consolidated results of operations or cash flows. See Note 9 for further information.
Film and Television Costs
In March 2019, the FASB updated the accounting guidance related to film and television costs. The updated guidance aligns the accounting for production costs of episodic television series with those of films, allowing for costs to be capitalized in excess of amounts of revenue contracted for each episode. The updated guidance also updates certain presentation and disclosure requirements for capitalized film and television costs, and requires impairment testing to be performed at a group level for capitalized film and television costs when the content is predominantly monetized with other owned or licensed content. The updated guidance is effective for us as of January 1, 2020 and early adoption is permitted. We are currently in the process of determining the impact that the updated accounting guidance will have on our consolidated financial statements.
Note 7: Film and Television Costs
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Film Costs: | |||||||
Released, less amortization | $ | 1,615 | $ | 1,600 | |||
Completed, not released | 124 | 144 | |||||
In production and in development | 1,282 | 1,063 | |||||
3,021 | 2,807 | ||||||
Television Costs: | |||||||
Released, less amortization | 2,410 | 2,161 | |||||
In production and in development | 1,228 | 953 | |||||
3,638 | 3,114 | ||||||
Programming rights, less amortization | 2,578 | 2,694 | |||||
9,237 | 8,615 | ||||||
Less: Current portion of programming rights | 1,461 | 1,323 | |||||
Film and television costs | $ | 7,776 | $ | 7,292 | |||
Note 8: Investments
Investment and Other Income (Loss), Net
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Equity in net income (losses) of investees, net | $ | (88 | ) | $ | (119 | ) | $ | (299 | ) | $ | (306 | ) | |||
Realized and unrealized gains (losses) on equity securities, net | 178 | (91 | ) | 436 | (128 | ) | |||||||||
Other income (loss), net | 79 | 5 | 312 | 57 | |||||||||||
Investment and other income (loss), net | $ | 169 | $ | (205 | ) | $ | 449 | $ | (377 | ) | |||||
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(in millions) | September 30, 2019 | December 31, 2018 | |||||
Equity method | $ | 1,290 | $ | 707 | |||
Marketable equity securities | 725 | 162 | |||||
Nonmarketable equity securities | 794 | 811 | |||||
Total investments | 2,809 | 1,680 | |||||
Less: Investment securing collateralized obligation | 816 | — | |||||
Noncurrent investments | $ | 1,993 | $ | 1,680 | |||
Equity Method
Hulu and Collateralized Obligation
In May 2019, we entered into a series of agreements (the “Hulu Transaction”) with The Walt Disney Company and certain of its subsidiaries (“Disney”), whereby we relinquished our board seats and substantially all voting rights associated with our investment in Hulu, LLC (“Hulu”), and Disney assumed full operational control. We also acquired our proportionate share of the approximate 10% interest in Hulu previously held by AT&T Inc. (“AT&T”) for approximately $477 million, increasing our ownership interest to approximately 33% from approximately 30%.
Following the Hulu Transaction, future capital calls are limited to $1.5 billion in the aggregate each year, with any excess funding requirements funded with member loans. We have the right, but not the obligation, to fund our proportionate share of these capital calls, and if we elect not to fund our share of future equity capital calls, our ownership interest will be diluted, subject to an ownership floor of 21%. The Hulu Transaction agreements include put and call provisions regarding our ownership interest in Hulu, pursuant to which, as early as January 2024, we can require Disney to buy, and Disney can require us to sell our interest, in either case, for fair value at that future time subject to a minimum equity value of $27.5 billion for 100% of the equity of Hulu. The minimum total equity value and ownership floor guarantee minimum proceeds of approximately $5.8 billion upon exercise of the put or call.
In connection with the Hulu Transaction, we agreed to extend certain licenses of NBCUniversal content until late 2024. We can terminate most of our content license agreements with Hulu beginning in 2022, and beginning in 2020, we have the right to modify certain content licenses that are currently exclusive to Hulu, so that we can exhibit the content on our platforms in return for reducing the license fee.
In August 2019, we entered into a financing arrangement with a syndicate of banks whereby we received proceeds of $5.2 billion under a term loan facility due March 2024. The principal amount of the term loan is secured by the proceeds guaranteed by Disney under the put/call provisions related to our investment in Hulu. The proceeds from the put/call provisions are available only for the repayment of the term loan and are not available to us unless and until the bank lenders are fully paid under the term loan provisions. The bank lenders have no rights to proceeds from the put/call provisions in excess of amounts owed under the term loan. As a result of this transaction, we now present our investment in Hulu and the term loan separately in our condensed consolidated balance sheet in the captions “investment securing collateralized obligation” and “collateralized obligation”, respectively. The recorded value of our investment reflects our historical cost in applying the equity method, and as a result, is less than its fair value. As of September 30, 2019, our collateralized obligation had a carrying value of $5.2 billion and an estimated fair value of $5.2 billion. The estimated fair value was based on Level 2 inputs that use interest rates for debt with similar terms and remaining maturities.
We account for our investment using the equity method. For the three and nine months ended September 30, 2019, we recognized losses of $101 million and $351 million, respectively, in equity in net income (losses) of investees, net. For the three and nine months ended September 30, 2018, we recognized losses of $132 million and $370 million, respectively. For the nine months ended September 30, 2019 and 2018, we made cash capital contributions totaling $903 million, inclusive of the funding for the acquisition of the AT&T interest, and $341 million, respectively, to Hulu. As of September 30, 2019 and December 31, 2018, our investment was $816 million and $248 million, respectively.
In August 2016, Time Warner Inc., which was acquired by AT&T in 2018, acquired a 10% interest in Hulu, diluting our interest at that time from approximately 33% to approximately 30%. Given the contingent nature of put and call options related to that interest, we recorded a deferred gain as a result of the dilution. In the first quarter of 2019, the put and call options expired unexercised and we recognized the previously deferred gain of $159 million in other income (loss), net.
The Weather Channel
In March 2018, we sold our investment in The Weather Channel cable network and recognized a pretax gain of $64 million in other income (loss), net.
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Marketable Equity Securities
Snap
For the three and nine months ended September 30, 2019, we recognized unrealized gains of $45 million and $303 million, respectively, in realized and unrealized gains (losses) on equity securities, net. For the three and nine months ended September 30, 2018, we recognized unrealized losses of $135 million and $180 million, respectively. As of September 30, 2019 and December 31, 2018, our investment was $465 million and $162 million, respectively.
Peloton
In September 2019, as a result of Peloton’s initial public offering, we recognized unrealized gains of $150 million related to our investment in realized and unrealized gains (losses) on equity securities, net. Following the initial public offering, we now present our investment in marketable equity securities, which was previously presented in non-marketable equity securities. As of September 30, 2019 and December 31, 2018, our investment was $260 million and $110 million, respectively.
Note 9: Supplemental Financial Information
Leases
Our leases consist primarily of real estate and equipment. We determine if an arrangement is a lease at inception. Lease assets and liabilities are recognized upon commencement of the lease based on the present value of the future minimum lease payments over the lease term. The lease term includes options to extend the lease when it is reasonably certain that we will exercise that option. We generally utilize our incremental borrowing rate based on information available at the commencement of the lease in determining the present value of future payments. The lease asset also includes any lease payments made and initial direct costs incurred and excludes lease incentives. Lease assets and liabilities are not recorded for leases with an initial term of one year or less. Lease expense for operating leases recorded in the balance sheet is included in operating costs and expenses and is based on the future minimum lease payments recognized on a straight-line basis over the term of the lease plus any variable lease costs. Operating lease expenses, inclusive of short-term and variable lease expenses, recognized in our condensed consolidated statement of income for the three and nine months ended September 30, 2019 were $110 million and $331 million, respectively. These amounts do not include lease costs associated with production activities or other amounts capitalized in our condensed consolidated balance sheet, which are not material.
The table below summarizes the operating lease assets and liabilities recorded in our condensed consolidated balance sheet.
Condensed Consolidated Balance Sheet
(in millions) | September 30, 2019 | ||
Other noncurrent assets, net | $ | 1,589 | |
Accrued expenses and other current liabilities | $ | 183 | |
Other noncurrent liabilities | $ | 1,514 | |
The table below summarizes our future minimum rental commitments for operating leases as of September 30, 2019 applying the new accounting guidance.
(in millions) | September 30, 2019 | ||
Remaining three months of 2019 | $ | 56 | |
2020 | 258 | ||
2021 | 223 | ||
2022 | 185 | ||
2023 | 159 | ||
Thereafter | 1,473 | ||
Total future minimum lease payments | 2,354 | ||
Less: imputed interest | 657 | ||
Total liability | $ | 1,697 | |
The weighted average remaining lease term for operating leases and the weighted average discount rate used to calculate our operating lease liabilities as of September 30, 2019 were 15 years and 4.10%, respectively.
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For the nine months ended September 30, 2019, cash payments for operating leases recorded in the condensed consolidated balance sheet were $199 million. Leases that have not yet commenced and lease assets and liabilities associated with leases entered into during the period were not material.
The tables below summarize our future minimum rental commitments for operating leases as of December 31, 2018 and rent expense for operating leases for the three and nine months ended September 30, 2018 using the accounting guidance in effect at that time.
(in millions) | December 31, 2018 | ||||||
2019 | $ | 248 | |||||
2020 | $ | 232 | |||||
2021 | $ | 199 | |||||
2022 | $ | 168 | |||||
2023 | $ | 144 | |||||
Thereafter | $ | 1,380 | |||||
(in millions) | Three Months Ended September 30, 2018 | Nine Months Ended September 30, 2018 | |||||
Rental expense | $ | 69 | $ | 212 | |||
Cash Payments for Interest and Income Taxes
Nine Months Ended September 30 | |||||||
(in millions) | 2019 | 2018 | |||||
Interest | $ | 314 | $ | 253 | |||
Income taxes | $ | 292 | $ | 373 | |||
Noncash Activities
During the nine months ended September 30, 2019, we acquired $755 million of property and equipment and intangible assets that were accrued but unpaid.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the condensed consolidated balance sheet to the total of the amounts reported in our condensed consolidated statement of cash flows.
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Cash and cash equivalents | $ | 1,157 | $ | 1,444 | |||
Restricted cash included in other noncurrent assets, net | 20 | 20 | |||||
Cash, cash equivalents and restricted cash, end of period | $ | 1,177 | $ | 1,464 | |||
Accumulated Other Comprehensive Income (Loss)
(in millions) | September 30, 2019 | September 30, 2018 | |||||
Deferred gains (losses) on cash flow hedges | $ | 9 | $ | 5 | |||
Unrecognized gains (losses) on employee benefit obligations | 131 | 115 | |||||
Cumulative translation adjustments | 143 | (22 | ) | ||||
Accumulated other comprehensive income (loss) | $ | 283 | $ | 98 | |||
Note 10: Related Party Transactions
In the ordinary course of our business, we enter into transactions with Comcast.
We generate revenue from Comcast primarily from the distribution of our cable network programming, the fees received under retransmission consent agreements in our Broadcast Television segment and, to a lesser extent, the sale of advertising and our owned programming, and we incur expenses primarily related to advertising and various support services provided by Comcast to us.
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As part of the Comcast cash management process, we and Comcast have a revolving credit agreement with a maturity date of 2026 that allows us to borrow from Comcast and for Comcast to borrow from us up to $5 billion. Depending on the receivable or payable position, amounts owed by us to Comcast or to us by Comcast under the revolving credit agreements are presented under the captions “notes payable to Comcast” and “notes receivable from Comcast,” respectively, in our condensed consolidated balance sheet and are presented as current since the amounts include daily borrowings and repayments throughout the year based on our working capital needs.
In the third quarter of 2019, using a portion of the proceeds from a collateralized obligation, we issued $1.3 billion of non-interest bearing notes due 2024 to Comcast, repaid $1.0 billion under our revolving credit agreement with Comcast, and repaid the $610 million 4.00% notes due 2049 to Comcast.
Comcast is also the counterparty to one of our contractual obligations. As of September 30, 2019, the carrying value of the liability associated with this contractual obligation was $383 million.
The following tables present transactions with Comcast and its consolidated subsidiaries that are included in our condensed consolidated financial statements.
Condensed Consolidated Statement of Income
Three Months Ended September 30 | Nine Months Ended September 30 | ||||||||||||||
(in millions) | 2019 | 2018 | 2019 | 2018 | |||||||||||
Transactions with Comcast and Consolidated Subsidiaries | |||||||||||||||
Revenue | $ | 597 | $ | 506 | $ | 1,808 | $ | 1,580 | |||||||
Total costs and expenses | $ | (73 | ) | $ | (59 | ) | $ | (198 | ) | $ | (162 | ) | |||
Interest expense and investment and other income (loss), net | $ | (162 | ) | $ | (9 | ) | $ | (148 | ) | $ | (52 | ) | |||
Condensed Consolidated Balance Sheet
(in millions) | September 30, 2019 | December 31, 2018 | |||||
Transactions with Comcast and Consolidated Subsidiaries | |||||||
Receivables, net | $ | 533 | $ | 464 | |||
Notes receivable from Comcast, current | $ | 4,192 | $ | 2,054 | |||
Film and television costs | $ | 21 | $ | 27 | |||
Note receivable from Comcast, noncurrent | $ | 1,101 | $ | — | |||
Other noncurrent assets, net | $ | 71 | $ | — | |||
Accounts payable and accrued expenses related to trade creditors | $ | 75 | $ | 78 | |||
Accrued expenses and other current liabilities | $ | 84 | $ | 32 | |||
Notes payable to Comcast | $ | 91 | $ | 54 | |||
Long-term debt (See Note 4) | $ | 158 | $ | 701 | |||
Other noncurrent liabilities | $ | 459 | $ | 410 | |||
Share-Based Compensation
Comcast maintains share-based compensation plans that consist primarily of awards of restricted share units and stock options to certain employees and directors as part of its approach to long-term incentive compensation. Additionally, through its employee stock purchase plans, employees are able to purchase shares of Comcast common stock at a discount through payroll deductions. Certain of our employees participate in these plans and the expense associated with their participation is settled in cash with Comcast. For the three months ended September 30, 2019 and 2018, we recognized share-based compensation expense of $45 million and $37 million, respectively. For the nine months ended September 30, 2019 and 2018, we recognized share-based compensation expense of $141 million and $115 million, respectively.
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