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| CMCSA > SEC Filings for CMCSA > Form 10-Q on 29-Oct-2008 | All Recent SEC Filings |
29-Oct-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 September 30, 2008, our cable systems served approximately 24.4 million video subscribers, 14.7 million high-speed Internet subscribers and 6.1 million phone subscribers and passed approximately 50.3 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 sources of revenue 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!, 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 nine months ended September 30, 2008 include the following:
• an increase in consolidated revenue of 11.4% to approximately $25.5 billion and an increase in consolidated operating income of 20.8% to approximately $5.0 billion
• an increase in Cable segment revenue of 11.1% to approximately $24.1 billion and an increase in operating income before depreciation and amortization of 10.9% to approximately $9.8 billion, both driven by growth in subscribers from the success of our bundled service offerings and by acquisitions
• the repurchase of approximately 141 million shares of our Class A and Class A Special common stock under our share repurchase authorization for approximately $2.8 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/ Nine Months Ended Increase/
September 30 (Decrease) September 30 (Decrease)
(in millions) 2008 2007 2008 2007
Revenue $ 8,549 $ 7,781 9.9 % $ 25,491 $ 22,881 11.4 %
Costs and expenses:
Operating, selling, general
and administrative expenses
(excluding depreciation and
amortization) 5,312 4,852 9.5 15,729 14,177 11.0
Depreciation 1,332 1,291 3.2 4,093 3,768 8.6
Amortization 235 247 (5.8 ) 694 816 (15.1 )
Operating income 1,670 1,391 20.1 4,975 4,120 20.8
Other income (expense) items,
net (513 ) (426 ) 20.5 (1,498 ) (767 ) 95.4
Income before income taxes
and minority interest 1,157 965 20.0 3,477 3,353 3.7
Income tax expense (401 ) (421 ) (4.7 ) (1,364 ) (1,400 ) (2.5 )
Income before minority
interest 756 544 39.0 2,113 1,953 8.2
Minority interest 15 16 (9.7 ) 22 32 (30.0 )
Net income $ 771 $ 560 37.6 % $ 2,135 $ 1,985 7.6 %
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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 nine months ended September 30, 2008 compared to the same periods in 2007. The remaining increases relate to our other business activities, primarily growth in our Comcast Interactive Media business and playoff game revenue generated in the second quarter of 2008 by Comcast Spectacor's professional sports teams. Cable segment revenue and Programming segment revenue are discussed separately in "Segment Operating Results."
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 nine months ended September 30, 2008 compared to the same periods in 2007. The remaining changes relate to our other business activities, including expanding our Comcast Interactive Media business, Comcast Spectacor and litigation expense incurred in 2007. Cable segment and Programming segment operating, selling, general and administrative expenses are discussed separately in "Segment Operating Results."
Consolidated Depreciation and Amortization
The increases in depreciation expense for the three and nine months ended September 30, 2008 compared to the same periods in 2007 were primarily a result of an increase in property and equipment associated with capital spending in recent years and the cable systems acquired in the Insight transaction.
The decreases in amortization expense for the three and nine months ended September 30, 2008 compared to the same periods in 2007 were 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 operating segments. It is also a
significant performance measure in our annual incentive compensation programs.
We believe that this measure is useful to investors because it is one of the
bases for comparing our operating performance with 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
13). 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 Increase/
September 30 (Decrease)
(in millions) 2008 2007 $ %
Video $ 4,681 $ 4,395 $ 286 6.5 %
High-speed Internet 1,822 1,624 198 12.2
Phone 690 470 220 46.8
Advertising 374 407 (33 ) (7.8 )
Other 336 296 40 12.6
Franchise fees 228 208 20 9.9
Revenue 8,131 7,400 731 9.9
Operating expenses 2,932 2,615 317 12.1
Selling, general and administrative expenses 1,948 1,810 138 7.7
Operating income before depreciation and
amortization $ 3,251 $ 2,975 $ 276 9.3 %
Nine Months Ended Increase/
September 30 (Decrease)
(in millions) 2008 2007 $ %
Video $ 14,113 $ 13,222 $ 891 6.7 %
High-speed Internet 5,364 4,740 624 13.2
Phone 1,917 1,243 674 54.2
Advertising 1,117 1,119 (2 ) (0.1 )
Other 957 788 169 20.8
Franchise fees 679 616 63 10.2
Revenue 24,147 21,728 2,419 11.1
Operating expenses 8,739 7,741 998 12.9
Selling, general and administrative expenses 5,653 5,188 465 9.0
Operating income before depreciation and
amortization $ 9,755 $ 8,799 $ 956 10.9 %
Cable Segment Revenue
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Video
Our video revenue continued to grow for the three and nine months ended September 30, 2008 compared to the same periods in 2007 due to subscriber growth in our digital cable services, including the demand for digital features such as On Demand, DVR and HDTV; rate adjustments; and the addition of the cable systems acquired in the Insight transaction. During the nine months ended September 30, 2008, we added approximately 1.2 million digital cable subscribers. As of September 30, 2008, approximately 69% of our 24.4 million video subscribers subscribed to at least one of our digital cable services. During the nine months ended September 30, 2008, the number of basic subscribers decreased by approximately 342,000 primarily due to increased competition in our service areas, as well as the weakness in the economy. Our average monthly video revenue per video subscriber increased during the nine months ended September 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 bundles and in promotional offers.
High-Speed Internet
The increases in high-speed Internet revenue for the three and nine months ended September 30, 2008 compared to the same periods in 2007 were primarily due to an increase in subscribers and the addition of the cable systems acquired in the Insight transaction. During the nine months ended September 30, 2008, we added approximately 1.2 million high-speed Internet subscribers. Average monthly revenue per subscriber has declined slightly due to an increased number of subscribers participating in our bundled service offerings and the introduction of new promotional offers and speed tiers.
Phone
Our phone revenue increased for the three and nine months ended September 30, 2008 compared to the same periods in 2007 due to subscriber growth in our digital phone service, which was partially offset by the loss of circuit-switched phone subscribers. During the nine months ended September 30, 2008, we added approximately 1.7 million digital phone subscribers. Average monthly revenue per subscriber for our digital phone service has decreased slightly due to an increased number of subscribers receiving service as part of a promotional offer or in a new product package.
Advertising
Advertising revenue decreased for the three and nine months ended September 30, 2008 compared to the same periods in 2007 primarily due to one less week in the broadcast advertising calendar for the three months ended September 30, 2008 and softness in the advertising marketplace throughout 2008. These declines have been partially offset by the inclusion of revenue from the cable systems acquired in the Insight transaction and increased political advertising revenue.
Other
We also generate revenue from our regional sports and news networks, our digital media center, residential video installation services, on-screen guide advertising, commissions from third-party electronic retailing and fees for other services. The increases in other revenue for the nine months ended September 30, 2008 compared to the same period in 2007 were primarily due to the regional sports network acquisitions of Comcast SportsNet Bay Area and Comcast SportsNet New England in the first half of 2007.
Franchise Fees
The increases in franchise fees collected from our cable subscribers for the three and nine months ended September 30, 2008 compared to the same periods in 2007 were primarily due to the increases in our revenue upon which the fees apply.
Cable Segment Operating Expenses
Operating expenses increased during the three and nine months ended September 30, 2008 compared to the same periods in 2007 primarily due to growth in the number of subscribers and the related costs associated with the delivery of services, including programming, and the addition of the cable systems acquired in the Insight transaction. The 2008 periods also include costs associated with the expansion of our cable services to small and medium-sized businesses.
Cable Segment Selling, General and Administrative Expenses
Selling, general and administrative expenses increased during the three and nine months ended September 30, 2008 compared to the same periods in 2007 primarily due to growth in the number of subscribers to our cable services, additional marketing costs associated with attracting new residential and business subscribers and the addition of the cable systems acquired in the Insight transaction. The 2008 periods also include severance costs related to our divisional reorganization.
Programming Segment Operating Results
Three Months Ended Increase/
September 30 (Decrease)
(in millions) 2008 2007 $ %
Revenue $ 347 $ 330 $ 17 5.3 %
Operating, selling, general and administrative
expenses 242 233 9 3.7
Operating income before depreciation and
amortization $ 105 $ 97 $ 8 9.1 %
Nine Months Ended Increase/
September 30 (Decrease)
(in millions) 2008 2007 $ %
Revenue $ 1,076 $ 966 $ 110 11.4 %
Operating, selling, general and administrative
expenses 769 729 40 5.5
Operating income before depreciation and
amortization $ 307 $ 237 $ 70 29.7 %
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Programming Segment Revenue
The increase in revenue for the three months ended September 30, 2008 compared to the same period in 2007 was primarily a result of increases in programming license fee revenue and international revenue. Advertising revenue decreased slightly during the three months ended September 30, 2008 compared to the same period in 2007 primarily due to the impact of one less week in the broadcast advertising calendar in 2008. The increase in revenue for the nine months ended September 30, 2008 compared to the same period in 2007 was primarily a result of increases in advertising revenue, programming license fee revenue and international revenue. For the three and nine months ended September 30, 2008, approximately 13% and 12%, respectively, of our Programming segment revenue was generated by our Cable segment. For the three and nine months ended September 30, 2007, approximately 11% and 13%, respectively, 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
Expenses grew at a rate slower than revenue growth for the three and nine months ended September 30, 2008 compared to the same periods in 2007, which resulted in improvements in margins. The 2008 periods were favorably impacted by the timing of certain marketing and programming expenses, which are expected to be incurred in the fourth quarter of 2008.
Consolidated Other Income (Expense) Items
Three Months Ended Nine Months Ended
September 30 September 30
(in millions) 2008 2007 2008 2007
Interest expense $ (601 ) $ (571 ) $ (1,840 ) $ (1,689 )
Investment income (loss), net 74 158 83 458
Equity in net (losses) income of
affiliates, net 2 (12 ) (46 ) (49 )
Other income (expense) 12 (1 ) 305 513
Total $ (513 ) $ (426 ) $ (1,498 ) $ (767 )
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Interest Expense
The increases in interest expense for the three and nine months ended September 30, 2008 compared to the same periods in 2007 were primarily due to an increase in our average debt outstanding, and early extinguishment costs associated with the repayment and redemption of certain debt obligations in the first half of 2008.
Investment Income (Loss), Net
The components of investment income (loss), net for the three and nine months ended September 30, 2008 and 2007 are presented in a table in Note 5 to our consolidated financial statements.
Other Income (Expense)
Other income for the nine months ended September 30, 2008 included 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 nine months ended September 30, 2007 included 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 nine months ended September 30, 2008 and 2007 reflects income tax rates which differ from the federal statutory rate primarily due to state income taxes and interest on uncertain tax positions. Income tax expense was reduced by approximately $80 million during the 2008 periods due to the settlement of an uncertain tax position (see Note 10), and the net impact of certain state tax law changes, which primarily affected our deferred income tax liabilities and other noncurrent liabilities. We expect our 2008 annual effective tax rate to be at the lower end of our anticipated 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, to meet our debt repayment obligations and to return capital to investors through stock repurchases and dividends.
The global financial markets have been and continue to be in turmoil, with extreme volatility in the equity and credit markets and with some financial and other institutions experiencing significant financial distress. During the three months ended September 30, 2008, we borrowed $1.5 billion using an existing credit facility in anticipation of our scheduled fourth quarter debt maturities and the funding of our investment in Clearwire in late 2008 (see "Investing Activities" below). As of September 30, 2008, we had approximately $5.2 billion remaining availability under these credit facilities and no commercial paper outstanding. From 2009 to 2011, our scheduled debt maturities total approximately $5.2 billion. In addition, neither our access to nor the value of our cash equivalents or short-term investments have been negatively affected by the recent liquidity problems of financial institutions. Although we have attempted to be prudent in our investment strategy and in pre-funding our anticipated fourth quarter liquidity needs, it is not possible to predict how the financial market turmoil and the deteriorating economic conditions may affect our financial position. Additional financial institution failures could reduce amounts available under committed credit facilities, could cause losses to the extent cash amounts or the value of securities exceed government deposit insurance limits, and could restrict our access to the public equity and debt markets.
Operating Activities
Details of net cash provided by operating activities are presented in the table
below.
Nine Months Ended
September 30
(in millions) 2008 2007
Operating income $ 4,975 $ 4,120
Depreciation and amortization 4,787 4,584
Operating income before depreciation and amortization 9,762 8,704
Noncash share-based compensation and contribution expense 195 172
Changes in operating assets and liabilities (276 ) (297 )
Cash basis operating income 9,681 8,579
Payments of interest (1,795 ) (1,724 )
Payments of income taxes (589 ) (1,439 )
Proceeds from interest and dividends received 91 125
Excess tax benefit under SFAS No. 123R presented in
financing activities (15 ) (36 )
Net cash provided by operating activities $ 7,373 $ 5,505
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The increase in interest payments for the nine months ended September 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 $483 million. The 2007 period also includes the payment of $376 million related to the settlement of federal tax audits.
Financing Activities
Net cash used in financing activities for the nine months ended September 30, 2008 consisted primarily of cash paid for the repurchase of approximately 141 million shares of our Class A and Class A Special common stock for approximately $2.8 billion, which represents the activity on a settlement date or cash basis; debt retirements and repayments of $1.1 billion; and dividend payments of $367 million. These cash outflows were partially offset by cash proceeds from borrowings of $3.5 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 September 30, 2008, amounts available under our facilities totaled approximately $5.2 billion. Lehman Brothers Bank, FSB, has a $157 million remaining commitment under our credit facility. This bank is not, to our knowledge, in any insolvency proceeding. Under our credit facility, other lenders are not obligated to fund a defaulting lender's commitment, although another lender could agree to fund the defaulting lender's commitment. Further, non-defaulting lenders are not able to use a default by another bank to avoid their own commitments.
Share Repurchases and Dividends
As of September 30, 2008, we had approximately $4.1 billion of availability remaining under our share repurchase authorization. We have previously indicated our plan to fully use our remaining share repurchase authorization by the end of 2009, subject to market conditions. Given the overall economy and the unprecedented turmoil and instability in the capital markets, we may not complete our share repurchase authorization in 2008 and 2009 as previously planned. We believe this is a disciplined and responsible approach given the difficult market conditions.
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