Comcast 2006 Annual Report Download - page 51

49 Comcast 2006 Annual Report Notes to Consolidated Financial Statements
Note 5: Acquisitions and Other Significant Events
Adelphia and Time Warner Transactions
In April 2005, we entered into an agreement with Adelphia Com-
munications (“Adelphia”) in which we agreed to acquire certain
assets and assume certain liabilities of Adelphia (the “Adelphia
Acquisition”). At the same time, we and Time Warner Cable Inc.
and certain of its affiliates (“TWC”) entered into several agreements
in which we agreed to (i) have our interest in Time Warner Entertain-
ment Company, L.P. (“TWE”) redeemed, (ii) have our interest in TWC
redeemed (together with the TWE redemption, the “Redemptions”),
and (iii) exchange certain cable systems acquired from Adelphia
and certain Comcast cable systems with TWC (the “Exchanges”).
On July 31, 2006, these transactions were completed. We collec-
tively refer to the Adelphia Acquisition, the Redemptions and the
Exchanges as the “Adelphia and Time Warner transactions.” Also
in April 2005, Adelphia and TWC entered into an agreement for the
acquisition of substantially all of the remaining cable system assets
and the assumption of certain of the liabilities of Adelphia.
The Adelphia and Time Warner transactions, which are described
in more detail below, resulted in a net increase of 1.7 million video
subscribers, a net cash payment by us of approximately $1.5 bil-
lion and the disposition of our ownership interests in TWE and
TWC and the assets of two cable system partnerships.
The Adelphia and Time Warner transactions added cable systems
located in 16 states (California, Colorado, Connecticut, Florida,
Georgia, Louisiana, Maryland, Massachusetts, Minnesota, Mis-
sissippi, Oregon, Pennsylvania, Tennessee, Vermont, Virginia and
West Virginia). We expect that the larger systems will result in econ-
omies of scale.
The Adelphia Acquisition
We paid approximately $3.6 billion in cash for the acquisition of
Adelphia’s interest in two cable system partnerships and certain
Adelphia cable systems and to satisfy certain related liabilities.
Approximately $2.3 billion of the amount paid was related to the
acquisition of Adelphia’s interest in Century — TCI California Com-
munications, L.P. (“Century”) and Parnassos Communications, L.P.
(“Parnassos” and together with Century, the “Partnerships”). We
held a 25% interest in Century and a 33.33% interest in Parnas-
sos. Our prior interests in the Partnerships were accounted for as
cost method investments. After acquiring Adelphia’s interests in the
Partnerships, we transferred the cable systems held by the Part-
nerships to TWC in the Exchanges, as discussed further below.
In addition to acquiring Adelphia’s interest in Century and Parnas-
sos, we acquired cable systems from Adelphia for approximately
$600 million in cash that we continue to own and operate.
The Redemptions
Our 4.7% interest in TWE was redeemed in exchange for 100% of
the equity interests in a subsidiary of TWE holding cable systems
with a fair value of approximately $600 million and approximately
$147 million in cash. Our 17.9% interest in TWC was redeemed
in exchange for 100% of the capital stock of a subsidiary of TWC
holding cable systems with a fair value of approximately $2.7 billion
and approximately $1.9 billion in cash. Our ownership interests in
TWE and TWC were accounted for as cost method investments.
We recognized a gain of approximately $535 million, in the aggre-
gate, on the Redemptions, which is included in investment income
(loss), net.
The Exchanges
The estimated fair value of the cable systems we transferred to
and received from TWC was approximately $8.6 billion and $8.5
billion, respectively. TWC made net cash payments aggregating
approximately $67 million to us for certain preliminary adjustments
related to the Exchanges.
The cable systems we transferred to TWC included our previously
owned cable systems located in Los Angeles, Cleveland and Dal-
las (“Comcast Exchange Systems”) and the cable systems held
by Century and Parnassos. The operating results of the Comcast
Exchange Systems are reported as discontinued operations for all
periods and are presented in accordance with SFAS No. 144 (see
“Discontinued Operations” below).
As a result of the Exchanges, we recognized a gain on the sale of
discontinued operations of $195 million, net of tax of $541 million
and a gain on the sale of the Century and Parnassos cable systems
of approximately $111 million that is included within investment
income (loss), net.
The cable systems that TWC transferred to us in the Exchanges
included cable systems that TWC acquired from Adelphia in its asset
purchase from Adelphia and TWC’s Philadelphia cable system.
Purchase Price Allocation
The cable systems acquired in the Adelphia and Time Warner
transactions were accounted for in accordance with SFAS No.
141, “Business Combinations” (“SFAS No. 141”). The results of
operations for the acquired cable systems have been included in
our consolidated financial statements since the acquisition date
(July 31, 2006) and are reported in our Cable segment. As a result
of the redemption of our investment in TWC and the exchange of
the cable systems held by Century and Parnassos, we reversed
deferred tax liabilities of approximately $760 million, primarily related
to the excess of tax basis of the assets acquired over the tax basis
of the assets exchanged and reduced the amount of goodwill and
other noncurrent assets that would have otherwise been recorded in
the acquisition. Substantially all of the goodwill recorded is expected
to be amortizable for tax purposes. The purchase price allocation
is preliminary and subject to refinement as valuations are finalized.
The weighted-average amortization period of the franchise-related
customer relationship intangible assets acquired was seven years.