Comcast 2007 Annual Report Download - page 25

Consolidated Depreciation and Amortization
The increases in depreciation expense for 2007 and 2006 are pri-
marily a result of the effects of capital expenditures by our Cable
segment, which resulted in increased depreciation of approximately
$700 million and $100 million, respectively, and acquisitions of cable
systems, which resulted in increased depreciation of approximately
$530 million and $200 million, respectively.
The increase in amortization expense for 2007 is primarily a result of
the increases in the amortization of our franchise-related customer
relationship intangible assets associated with our newly acquired
cable systems, purchases of software-related intangibles and the
write-down of intangible assets of approximately $30 million related
to the planned shutdown of the AZN network in 2008. The decrease
in amortization expense for 2006 is primarily a result of decreases
in the amortization of our franchise-related customer relationship
intangible assets, which were partially offset by increased amor-
tization expense related to software-related intangibles acquired in
various transactions and the newly acquired cable systems.
Segment Operating Results
Certain adjustments have been made in our 2005 and 2006 seg-
ment presentation to be consistent with our 2007 management
reporting presentation. These adjustments are primarily related to
certain segment reclassifications and are further discussed in Note
15 to our consolidated financial statements. The Cable segment
includes the operating results for the Houston cable system
beginning August 1, 2006. However, the operating results of the
Houston cable system were eliminated in our consolidated finan-
cial statements for 2006 as we continued to account for Texas
and Kansas City Cable Partners as an equity method investment
for external financial reporting purposes until the Houston cable
system was acquired on January 1, 2007.
To measure the performance of our operating segments, we use
operating income 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. It is
also unaffected by our capital structure or investment activities. We
use this measure to evaluate our consolidated operating perform-
ance and the operating performance of our operating segments,
and to allocate resources and capital to our operating segments. It is
also a significant performance measure in our annual incentive
compensation programs. We believe that this measure is useful to
investors because it is one of the bases for comparing our operating
performance with other companies in our industries, although our
measure may not be directly comparable to similar measures used
by other companies. Because we use 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 15). You should not
consider this measure 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 accord-
ance with GAAP.
Cable Segment Overview
Our cable systems simultaneously deliver video, high-speed Internet
and phone services to our subscribers. The majority of our Cable
segment revenue is earned from subscriptions to these cable serv-
ices. Subscribers typically pay us monthly, based on their chosen
level of service, number of services and features and the type of
equipment they use, and generally may discontinue service at any
time. Our revenue and operating income before depreciation and
amortization have increased as a result of the effects of our recent
acquisitions, continued demand for our products and services
(including our bundled offerings), as well as other factors discussed
below. The newly acquired cable systems accounted for approx-
imately $2.6 billion and $1.7 billion of the increases in revenues in
2007 and 2006, respectively. However, intensifying competition and
a weakening economy affected our net subscriber additions during
the second half of 2007 and may, if these conditions continue,
adversely impact our results of operations in 2008, including as a
result of a decline in the number of subscribers to our basic ca-
ble services.
Revenue and Operating Income
Before Depreciation and Amortization
(in billions)
2007
2006
2005
Revenue
Operating Income
Before Depreciation
and Amortization
$20.0
$24.0
$29.3
$7.9
$9.7
$11.9
23 Comcast 2007 Annual Report on Form 10-K