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| CMCSA > SEC Filings for CMCSA > Form 10-Q on 30-Jul-2008 | All Recent SEC Filings |
30-Jul-2008
Quarterly Report
Overview
We are the largest cable operator in the United States and offer a variety of entertainment and communications products and services. As of June 30, 2008, our cable systems served approximately 24.6 million video subscribers, 14.4 million high-speed Internet subscribers and 5.7 million phone subscribers and passed approximately 50.1 million homes in 39 states and the District of Columbia.
We classify our operations in two reportable segments: Cable and Programming. Our Cable segment, which generates approximately 95% of our consolidated revenue, manages and operates our cable systems, including video, high-speed Internet and phone services ("cable services"). The majority of our Cable segment revenue is earned from monthly subscriptions for these cable services. Other revenue sources include advertising and the operation of our regional sports and news networks. Our Programming segment consists primarily of our consolidated national programming networks, including E!, The Golf Channel, VERSUS, G4 and Style. Revenue from our Programming segment is earned primarily from the sale of advertising and from monthly per subscriber programming license fees.
Highlights and business developments for the six months ended June 30, 2008 include the following:
• an increase in consolidated revenue of 12.2% to approximately $16.9 billion and an increase in consolidated operating income of 21.1% to approximately $3.3 billion
• an increase in Cable segment revenue of 11.8% to approximately $16.0 billion and an increase in operating income before depreciation and amortization of 11.7% to approximately $6.5 billion, both driven by growth in subscribers, acquisitions and the success of our bundled offerings
• the repurchase of approximately 101 million shares of our Class A and Class A Special common stock under our Board-authorized share repurchase program for approximately $2.0 billion
• the acquisition of cable systems serving Illinois and Indiana (approximately 696,000 video subscribers), as a result of the dissolution of Insight Midwest, LP (the "Insight transaction"), in January 2008
Consolidated Operating Results
Three Months Ended Increase/ Six Months Ended Increase/
June 30 (Decrease) June 30 (Decrease)
(in millions) 2008 2007 2008 2007
Revenue $ 8,553 $ 7,712 10.9 % $ 16,942 $ 15,100 12.2 %
Costs and expenses:
Operating, selling, general
and administrative expenses
(excluding depreciation and
amortization) 5,202 4,700 10.7 10,417 9,325 11.7
Depreciation 1,371 1,252 9.5 2,761 2,477 11.4
Amortization 230 292 (21.1 ) 459 569 (19.1 )
Operating income 1,750 1,468 19.1 3,305 2,729 21.1
Other income (expense) items,
net (676 ) (439 ) 54.0 (985 ) (341 ) 189.0
Income before income taxes and
minority interest 1,074 1,029 4.3 2,320 2,388 (2.9 )
Income tax expense (455 ) (453 ) 0.5 (963 ) (979 ) (1.6 )
Income before minority
interest 619 576 7.3 1,357 1,409 (3.7 )
Minority interest 13 12 19.4 7 16 (50.4 )
Net income $ 632 $ 588 7.5 % $ 1,364 $ 1,425 (4.3 )%
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All percentages are calculated based on actual amounts. Minor differences may exist due to rounding.
Consolidated Revenue
Our Cable and Programming segments accounted for substantially all of the increases in consolidated revenue for the three and six months ended June 30, 2008 compared to the same period in 2007. Cable segment revenue and Programming segment revenue are discussed separately below in "Segment Operating Results." The remaining increases relate to our other business activities, primarily growth in Comcast Interactive Media and playoff game revenue generated by Comcast Spectacor's professional sports teams.
Consolidated Operating, Selling, General and Administrative Expenses
Our Cable and Programming segments accounted for substantially all of the increases in consolidated operating, selling, general and administrative expenses for the three and six months ended June 30, 2008 compared to the same periods in 2007. Cable segment and Programming segment operating, selling, general and administrative expenses are discussed separately below in "Segment Operating Results." The remaining increases relate to our other business activities, including expanding our Comcast Interactive Media business, and Comcast Spectacor.
Consolidated Depreciation and Amortization
The increases in depreciation expense for the three and six months ended June 30, 2008 compared to the same periods in 2007 are primarily a result of the increase in property and equipment and the depreciation associated with the cable systems acquired in the Insight transaction.
The decreases in amortization expense for the three and six months ended June 30, 2008 compared to the same periods in 2007 are primarily due to the customer relationship intangible assets associated with the AT&T Broadband acquisition in 2002 being fully amortized.
Segment Operating Results
To measure the performance of our operating segments, we use operating income
(loss) before depreciation and amortization, excluding impairment charges
related to fixed and intangible assets, and gains or losses from the sale of
assets, if any. This measure eliminates the significant level of noncash
depreciation and amortization expense that results from the capital-intensive
nature of our businesses and from intangible assets recognized in business
combinations. Additionally, it is unaffected by our capital structure or
investment activities. We use this measure to evaluate our consolidated
operating performance, the operating performance of our operating segments and
to allocate resources and capital to our business segments. It is also a
significant performance measure in our annual incentive compensation programs.
We believe that this measure is useful to investors because it is one of the
bases for comparing our operating performance with that of other companies in
our industries, although our measure may not be directly comparable to similar
measures used by other companies. Because we use this metric to measure our
segment profit or loss, we reconcile it to operating income, the most directly
comparable financial measure calculated and presented in accordance with
generally accepted accounting principles in the United States ("GAAP") in the
business segment footnote to our consolidated financial statements (see Note
12). This measure should not be considered a substitute for operating income
(loss), net income (loss), net cash provided by operating activities, or other
measures of performance or liquidity we have reported in accordance with GAAP.
Cable Segment Operating Results
Three Months Ended
June 30 Increase/(Decrease)
(in millions) 2008 2007 $ %
Video $ 4,726 $ 4,465 $ 261 5.8 %
High-speed Internet 1,792 1,589 203 12.7
Phone 640 420 220 52.3
Advertising 399 399 - 0.7
Other 316 250 66 25.7
Franchise fees 227 207 20 9.2
Revenue 8,100 7,330 770 10.5
Operating expenses 2,898 2,576 322 12.5
Selling, general and administrative
expenses 1,840 1,723 117 6.8
Operating income before depreciation and
amortization $ 3,362 $ 3,031 $ 331 10.9 %
Six Months Ended
June 30 Increase/(Decrease)
(in millions) 2008 2007 $ %
Video $ 9,432 $ 8,827 $ 605 6.9 %
High-speed Internet 3,542 3,116 426 13.7
Phone 1,227 773 454 58.8
Advertising 743 712 31 4.6
Other 621 492 129 25.8
Franchise fees 451 408 43 10.3
Revenue 16,016 14,328 1,688 11.8
Operating expenses 5,807 5,126 681 13.3
Selling, general and administrative
expenses 3,705 3,378 327 9.7
Operating income before depreciation and
amortization $ 6,504 $ 5,824 $ 680 11.7 %
Cable Segment Revenue
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Video
Our video revenue continued to grow due to rate increases, subscriber growth in our digital cable services, including the demand for digital features such as On Demand, DVR and HDTV, and the addition of the cable systems acquired in the Insight transaction. During the six months ended June 30, 2008, we added approximately 814,000 digital cable subscribers. As of June 30, 2008, approximately 67% of our 24.6 million video subscribers subscribed to at least one of our digital cable services. During the six months ended June 30, 2008, the number of basic subscribers decreased by approximately 195,000 primarily due to increased competition in our service areas. Our average monthly video revenue per video subscriber increased during the six months ended June 30, 2008 to approximately $64 from approximately $61 as of December 31, 2007. The rate of this growth has slowed due to an increased number of subscribers participating in our bundled and promotional offers.
High-Speed Internet
The increases in high-speed Internet revenue for the three and six months ended June 30, 2008 compared to the same periods in 2007 reflect an increase in subscribers and the addition of the cable systems acquired in the Insight transaction. During the six months ended June 30, 2008, we added approximately 771,000 high-speed Internet subscribers. Average monthly revenue per subscriber has declined slightly as a result of an increased number of subscribers participating in our bundled offers and the introduction of new promotional offers and speed tiers.
Phone
Our phone revenue increased due to subscriber growth in our digital phone service, which was partially offset by the loss of circuit-switched phone subscribers. During the six months ended June 30, 2008, we added 1.2 million digital phone subscribers. The number of circuit-switched phone subscribers will continue to decrease as we phase out this service during 2008.
Advertising
Advertising revenue remained flat for the three months ended June 30, 2008 compared to the same period in 2007. The 2008 revenue amount includes revenue from the cable systems acquired in the Insight transaction and increased political advertising revenue. Absent these items, advertising revenue decreased, reflecting softness in the advertising marketplace, particularly in the automobile and housing-related sectors. The increase in advertising revenue for the six months ended June 30, 2008 compared to the same period in 2007 is primarily due to an increase in political advertising related to the U.S. primary elections, the addition of the cable systems acquired in the Insight transaction and an additional week in the broadcast advertising calendar.
Other
We also generate revenue from our regional sports and news networks, our digital media center, residential video installation services, interactive guide advertising, commissions from third-party electronic retailing and fees for other services. The increases in other revenue for the three and six months ended June 30, 2008 compared to the same periods in 2007 are primarily due to the regional sports network acquisitions of Comcast SportsNet Bay Area and Comcast SportsNet New England.
Franchise Fees
The increases in franchise fees collected from our cable subscribers for the three and six months ended June 30, 2008 compared to the same periods in 2007 are primarily due to the increases in our revenue upon which the fees apply.
Cable Segment Operating Expenses
Operating expenses increased during the three and six months ended June 30, 2008 compared to the same periods in 2007 primarily due to growth in the number of subscribers to our cable services and the addition of the cable systems acquired in the Insight transaction. The remaining increases were primarily a result of costs associated with the delivery of these services and additional personnel to handle service calls and provide customer support.
Cable Segment Selling, General and Administrative Expenses
Selling, general and administrative expenses increased during the three and six months ended June 30, 2008 compared to the same periods in 2007 primarily due to growth in the number of subscribers to our cable services. The remaining increase was primarily a result of additional employees needed to provide customer and other administrative services, as well as additional marketing costs associated with attracting new subscribers.
Programming Segment Operating Results
Three Months Ended
June 30 Increase/(Decrease)
(in millions) 2008 2007 $ %
Revenue $ 366 $ 334 $ 32 9.6 %
Operating, selling, general and
administrative expenses 277 259 18 7.5
Operating income before depreciation and
amortization $ 89 $ 75 $ 14 16.8 %
Six Months Ended
June 30 Increase/(Decrease)
(in millions) 2008 2007 $ %
Revenue $ 729 $ 636 $ 93 14.6 %
Operating, selling, general and
administrative expenses 527 496 31 6.4
Operating income before depreciation and
amortization $ 202 $ 140 $ 62 43.8 %
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Programming Segment Revenue
The increase in revenue for the three months ended June 30, 2008 compared to the same period in 2007 is primarily a result of increases in advertising revenue, programming license fee revenue and international revenue. The increase in revenue for the six months ended June 30, 2008 compared to the same period in 2007 is primarily a result of increases in advertising revenue, including the impact of an additional week in the 2008 broadcast advertising calendar, programming license fee revenue and international revenue. For the three and six months ended June 30, 2008, approximately 12% of our Programming segment revenue was generated by our Cable segment. For the three and six months ended June 30, 2007, approximately 13% of our Programming segment revenue was generated by our Cable segment. These amounts are eliminated in our consolidated financial statements but are included in the amounts presented in the table above.
Programming Segment Expenses
Expense growth for the three and six months ended June 30, 2008 compared to the same periods in 2007 was favorably impacted by the timing of certain marketing and programming expenses, which are expected to be incurred in the second half of 2008.
Consolidated Other Income (Expense) Items
Three Months Ended Six Months Ended
June 30 June 30
(in millions) 2008 2007 2008 2007
Interest expense $ (618 ) $ (550 ) $ (1,239 ) $ (1,118 )
Investment income (loss), net (70 ) 126 9 300
Equity in net (losses) income of
affiliates, net (13 ) (16 ) (48 ) (37 )
Other income (expense) 25 1 293 514
Total $ (676 ) $ (439 ) $ (985 ) $ (341 )
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Interest Expense
The increases in interest expense for the three and six months ended June 30, 2008 compared to the same periods in 2007 are primarily due to an increase in our average debt outstanding and early extinguishment costs associated with the repayment and redemption of certain debt obligations.
Investment Income (Loss), Net
The components of investment income (loss), net for the three and six months ended June 30, 2008 and 2007 are presented in a table in Note 5 to our consolidated financial statements.
Other Income (Expense)
Other income for the six months ended June 30, 2008 includes a gain of approximately $235 million on the sale of our 50% interest in the Insight asset pool in connection with the Insight transaction (see Note 4). Other income for the six months ended June 30, 2007 includes a gain of approximately $500 million on the sale of our 50% interest in the Kansas City asset pool in connection with the dissolution of Texas and Kansas City Cable Partners.
Income Tax Expense
Income tax expense for the three and six months ended June 30, 2008 and 2007 reflects income tax rates higher than the federal statutory rate primarily due to state income taxes and interest on uncertain tax positions. We expect our 2008 annual effective tax rate to be in the range of 40% to 45%.
Liquidity and Capital Resources
Our businesses generate significant cash flows from operating activities. We believe that we will be able 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; through available borrowings under our existing credit facilities; and through our ability to obtain future external financing.
We anticipate continuing to use a substantial portion of our cash flows to fund our capital expenditures, to invest in business opportunities and to return capital to investors through stock repurchases and dividends. The credit markets have been and continue to be volatile primarily due to difficulties in the residential mortgage markets and
also due to the slowing economy. We do not hold any cash equivalents or short-term investments whose liquidity or value has been affected by these negative trends in the financial markets.
Operating Activities
Details of net cash provided by operating activities are presented in the table
below.
Six Months Ended
June 30
(in millions) 2008 2007
Operating income $ 3,305 $ 2,729
Depreciation and amortization 3,220 3,046
Operating income before depreciation and amortization 6,525 5,775
Noncash share-based compensation and contribution expense 123 86
Changes in operating assets and liabilities (293 ) (287 )
Cash basis operating income 6,355 5,574
Payments of interest (1,116 ) (1,078 )
Payments of income taxes (355 ) (647 )
Proceeds from interest, dividends received and other
nonoperating items 59 81
Excess tax benefit under SFAS No. 123R presented in
financing activities (15 ) (23 )
Net cash provided by operating activities $ 4,928 $ 3,907
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The increase in interest payments for the six months ended June 30, 2008 compared to the same period in 2007 was primarily due to an increase in our average debt outstanding. The decrease in income tax payments was primarily due to the Economic Stimulus Act of 2008, which resulted in a reduction in our tax payments of approximately $315 million.
Financing Activities
Net cash used in financing activities for the six months ended June 30, 2008 consisted primarily of cash paid for the repurchase of approximately 100 million shares of our Class A and Class A Special common stock for $2.0 billion, which represents the activity on a settlement date or cash basis, debt retirements and repayments of $831 million, and dividend payments of $185 million. These cash outflows were partially offset by cash proceeds from borrowings of $2.0 billion.
We have in the past made and may from time to time in the future make optional repayments on our debt obligations depending on various factors, such as market conditions. These repayments may include repurchases of our outstanding public notes and debentures.
Available Borrowings Under Credit Facilities
We traditionally maintain significant availability under our lines of credit and commercial paper program to meet our short-term liquidity requirements. In January 2008, we entered into an amended and restated revolving bank credit facility which may be used for general corporate purposes. This amendment increased the size of the credit facility from $5.0 billion to $7.0 billion and extended the maturity of the loan commitment from October 2010 to January 2013. As of June 30, 2008, amounts available under our facilities totaled approximately $6.7 billion.
Share Repurchase Program and Dividends
As of June 30, 2008, the maximum dollar value of shares that may be repurchased under our Board-authorized share repurchase program was approximately $4.9 billion. We plan to fully use our remaining share repurchase authorization by the end of 2009, subject to market conditions.
In February and May 2008, our Board of Directors approved quarterly dividends of $0.0625 per share as part of our planned annual dividend of $0.25 per share.
Payments of 2008 Quarterly Dividends
(in millions) Payment Amount Month of Payment
Three months ended March 31, 2008 $ 185 April
Three months ended June 30, 2008 $ 182 July
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Investing Activities
Net cash used in investing activities for the six months ended June 30, 2008 consisted primarily of cash paid for capital expenditures of $2.7 billion, acquisitions of $331 million, net of cash acquired, and cash paid for intangible assets of $245 million. These cash outflows were partially offset by proceeds from sales of investments of $320 million. Capital expenditures have been our most significant recurring investing activity and we expect that this will continue in the future.
In May 2008, Sprint Nextel entered into an agreement with Clearwire Corporation and an investor group made up of us, Intel, Google, Time Warner Cable and Bright House. Under this agreement, Sprint Nextel and Clearwire Corporation will combine their next-generation wireless broadband businesses to form an independent, publicly traded company called Clearwire that will focus on the deployment of a nationwide 4G wireless network. We, together with the other members of the investment group, have agreed to invest $3.2 billion in Clearwire. Our portion of the investment is $1.05 billion. This transaction is expected to close in late 2008 or early 2009.
Critical Accounting Judgments and Estimates
The preparation of our 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 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 values 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 the accounting for income taxes and legal contingencies are critical in the preparation of our consolidated financial statements. We performed our annual impairment testing as of April 1, 2008 and no impairment charge was recorded.
For a full discussion of the accounting judgments and estimates that we have identified as critical in the preparation of our consolidated financial statements, please refer to our 2007 Annual Report on Form 10-K.
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