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July 30, 2020, 6:34 p.m. EDT

10-Q: COMCAST CORP

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(EDGAR Online via COMTEX) -- 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. Cable Communications Segment Cable Communications is a leading provider of high-speed internet, video, voice, wireless, and security and automation services to residential customers under the Xfinity brand; we also provide these and other services to business customers and sell advertising. As of June 30, 2020, our cable systems had 32.1 million total customer relationships, including 29.8 million residential and 2.4 million business customer relationships, and passed more than 59 million homes and businesses. Revenue is generated primarily from residential and business customers that subscribe to our services, which are marketed 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 Cable Networks 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. Revenue is generated 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 content on standard-definition DVDs and Blu-ray discs (together, "DVDs") and through digital distribution services such as iTunes. Broadcast Television Broadcast Television 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. Revenue is generated primarily from the sale of advertising on our networks and digital properties, from the licensing of programming, 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 and Telemundo-affiliated local broadcast television stations; and from the sale of our owned programming on DVDs and through digital distribution services. Filmed Entertainment Filmed Entertainment 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. Revenue is generated 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. Filmed Entertainment also generates revenue from Fandango, a movie ticketing and entertainment business, consumer products, the production and licensing of live stage plays, and the distribution of filmed entertainment produced by third parties. Theme Parks Theme Parks 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. Revenue is generated primarily from guest spending at our Universal theme parks. Sky Segment 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. As of June 30, 2020, Sky had 23.7 million retail customer relationships.

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Corporate and Other

We incurred costs during the first half of 2020 associated with compensating personnel in roles affected by COVID-19. These costs included additional compensation for frontline personnel who worked to keep our customers connected to our services and compensation for certain personnel who were unable to work due to the closing or suspension of operations.

We have pledged, continuing through the end of December 2020, that new qualifying customers for Internet Essentials, our low-income internet adoption program, will receive 60 days of free internet services. We also pledged through the end of June 2020 to waive certain fees and to not disconnect internet, voice or wireless services for customers for nonpayment, and are providing these customers a variety of flexible and extended payment options. As a result, our customer metrics for the first half of 2020 do not include certain high-risk customers who continue to receive service following nonpayment or customers in the free Internet Essentials offer.

Many professional sports leagues have resumed or have announced plans to resume, some with a reduced schedule for the remainder of the interrupted seasons. Certain of our programming distribution agreements with regional sports networks include contractual adjustment provisions if a minimum number of sporting events does not occur. In the second quarter of 2020, our programming expenses were reduced as a result of these provisions, and our revenue was negatively impacted in similar amounts as a result of adjustments that we anticipate passing through to our customers. These provisions are also expected to impact future period revenue and expenses in 2020. The ultimate amounts and timing of the adjustments are dependent upon the extent to which the sports leagues are able to resume the interrupted seasons.

The deterioration of economic conditions and increased economic uncertainty resulting from COVID-19 have resulted in reduced demand for our residential and business services and reduced spending from advertisers, which have had, and likely will continue to have, negative impacts on our revenue over the near to medium term. In addition, we believe there is increased risk associated with collections on our outstanding receivables, and we have incurred, and expect to continue to incur, increases in our bad debt expense compared to the prior year periods.

NBCUniversal

The deterioration of economic conditions caused by COVID-19 resulted in significant reductions in advertising spend by our customers in the Cable Networks and Broadcast Television segments in the second quarter of 2020, and we expect

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this trend to continue over the near to medium term. These conditions have also resulted, and may continue to result, in an acceleration of subscriber losses at our networks due to reduced consumer spending.

The postponement and cancellation of many sporting events and professional sports seasons impacted our first and second quarter 2020 results of operations, since both advertising revenues and costs associated with broadcasting these programs were not recognized. Many professional sports leagues have resumed or have announced plans to resume, some with reduced numbers of events for the remainder of the interrupted seasons. Certain of our sports programming rights agreements and distribution agreements with multichannel video providers include contractual provisions if a minimum number of events does not occur. Our distribution revenue in the second quarter of 2020 was negatively impacted as a result of credits accrued relating to these provisions, and the programming costs that we will recognize as the remaining events occur, which are now expected to be primarily in the third quarter of 2020, will also be impacted. When, or the extent to which, sporting events will occur in 2020 will impact the timing, and potentially the amount, of revenue and expense recognition. In addition, the 2020 Tokyo Olympics have been postponed from the third quarter of 2020 to the third quarter of 2021, which will result in a corresponding delay of the associated revenue and costs.

The creation and availability of our film and television programming in the United States and globally have been disrupted, including from the suspension of studio production operations. Additionally, with the temporary closure of many movie theaters worldwide, we have delayed or altered the theatrical distribution strategy for certain of our films, both domestically and internationally. Delays in theatrical releases will affect both current and future periods as a result of corresponding delays in subsequent content licensing windows. We expect results of operations in our Filmed Entertainment segment to continue to be negatively impacted over the near to medium term as a result of COVID-19.

Sky

We temporarily suspended certain sales channels due to COVID-19, which negatively impacted net customer additions and revenue in the first and second quarters of 2020. Our sales channels generally resumed operations in June.

COVID-19 has resulted in the deterioration of economic conditions and increased economic uncertainty in the U.K. and Europe, intensifying what was an already deteriorating economic and advertising environment. These conditions negatively impacted revenue in the first and second quarters of 2020, and we expect will continue to reduce advertising spend and consumer demand for our services for the remainder of 2020. In addition, there is increased risk associated with collections on our outstanding receivables, and we have incurred and expect to continue to incur increases in our bad debt expense.

Global financial markets have been volatile and have experienced significant declines, and domestic and global economic conditions are showing signs of material weakness. At this point, it is impossible to predict the extent and duration of these and any other impacts of COVID-19 to our businesses, or the degree to which demand for our products and services, or supply of key inputs to those products and services, will be affected. This uncertainty makes it challenging for management to estimate with precision the future performance of our businesses.

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Liquidity

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Sky's 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 second half of each year due to higher marketing expenses.







                                   Three Months Ended        Increase/        Six Months Ended         Increase/
                                        June 30,            (Decrease)            June 30,            (Decrease)
        (in millions, except
        per share data)            2020          2019            %           2020          2019            %
        Revenue                $   23,715     $  26,858        (11.7 )%   $  50,324     $  53,717         (6.3 )%
        Costs and Expenses:
        Programming and
        production                  6,817         8,255        (17.4 )       15,118        16,824        (10.1 )
        Other operating and
        administrative              7,646         8,086         (5.5 )       15,900        15,986         (0.5 )
        Advertising, marketing
        and promotion               1,341         1,885        (28.9 )        3,279         3,773        (13.1 )
        Depreciation                2,099         2,197         (4.5 )        4,206         4,437         (5.2 )
        Amortization                1,165         1,079          8.1          2,322         2,159          7.6
        Operating income            4,647         5,356        (13.2 )        9,499        10,538         (9.9 )
        Interest expense           (1,112 )      (1,137 )       (2.1 )       (2,324 )      (2,287 )        1.6
        Investment and other
        income (loss), net            420           (55 )         NM           (296 )         621       (147.7 )
        Income before income
        taxes                       3,955         4,164         (5.0 )        6,879         8,872        (22.5 )
        Income tax expense           (946 )        (961 )       (1.5 )       (1,646 )      (2,037 )      (19.2 )
        Net income                  3,009         3,203         (6.0 )        5,233         6,835        (23.4 )
        Less: Net income
        attributable to
        noncontrolling
        interests and
        redeemable subsidiary
        preferred stock                21            78        (73.6 )           98           157        (37.5 )
        Net income
        attributable to
        Comcast Corporation    $    2,988     $   3,125         (4.4 )%   $   5,135     $   6,678        (23.1 )%
        Basic earnings per
        common share
        attributable to
        Comcast Corporation
        shareholders           $     0.65     $    0.69         (5.8 )%   $    1.12     $    1.47        (23.8 )%
        Diluted earnings per
        common share
        attributable to
        Comcast Corporation
        shareholders           $     0.65     $    0.68         (4.4 )%   $    1.11     $    1.45        (23.4 )%
        Adjusted EBITDA(a)     $    7,927     $   8,716         (9.1 )%   $  16,057     $  17,269         (7.0 )%
        


All percentages are calculated based on actual amounts. Minor differences may exist due to rounding. Percentage changes that are considered not meaningful are denoted with NM.

Consolidated Revenue

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Consolidated Costs and Expenses







                                     Three Months Ended          Increase/         Six Months Ended          Increase/
                                          June 30,              (Decrease)             June 30,             (Decrease)
        (in millions)                2020            2019            %            2020          2019             %
        Cable Communications   $    1,937         $   2,036         (4.9 )%   $    3,883     $   4,071         (4.6 )%
        NBCUniversal                  574               527          8.9           1,139         1,042          9.3
        Sky                           720               673          7.0           1,438         1,414          1.7
        Corporate and Other            33                40        (18.1 )            68            69         (0.8 )
        Comcast Consolidated   $    3,264         $   3,276         (0.4 )%   $    6,528     $   6,596         (1.0 )%
        


Consolidated depreciation and amortization expense decreased for the three and six months ended June 30, 2020 compared to the same periods in 2019 primarily due to a decrease in depreciation at Cable Communications related to a reduction in capital expenditures on customer premise equipment, partially offset by an . . .

Jul 30, 2020

COMTEX_368668460/2041/2020-07-30T18:34:27

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