Comcast 2008 Annual Report Download - page 36

Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements
that are reasonably likely to have a current or future effect on our
financial condition, results of operations, liquidity, capital
expenditures or capital resources.
Critical Accounting Judgments and Estimates
The preparation of our 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 histor-
ical 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 are critical in the preparation
of our financial statements. We had previously disclosed that the
accounting judgments and estimates related to our legal con-
tingencies were critical in the preparation of our financial
statements. This identification was based in large part on the fact
that significant amounts were included in our consolidated balance
sheet representing management’s estimates of the ultimate out-
come of these legal contingencies. As substantially all of the
contingencies to which these balance sheet estimates have been
resolved and there are no significant estimates recorded for cur-
rent legal contingencies as they are either not probable, estimable
or both, estimates related to our legal contingencies are not critical
in the preparation of our financial statements at December 31,
2008. Management has discussed the development and selection
of these critical accounting judgments and estimates with the
Audit Committee of our Board of Directors, and the Audit Commit-
tee has reviewed our disclosures relating to them, which are
presented below.
Refer to Note 2 to our consolidated financial statements for a
discussion of our accounting policies with respect to these and
other items.
Valuation and Impairment Testing of Cable Franchise Rights
Our largest asset, our cable franchise rights, results from agree-
ments we have with state and local governments that allow us to
construct and operate a cable business within a specified geo-
graphic area. The value of a franchise is derived from the
economic benefits we receive from the right to solicit new
customers and to market new services, such as advanced digital
video services and high-speed Internet and phone services, in a
particular service area. The amounts we record for cable franchise
rights are primarily a result of cable system acquisitions. Typically
when we acquire a cable system, the most significant asset we
record is the value of the cable franchise rights. Often these cable
system acquisitions include multiple franchise areas. We currently
serve approximately 6,400 franchise areas in the United States.
We have concluded that our cable franchise rights have an indef-
inite useful life since there are no legal, regulatory, contractual,
competitive, economic or other factors which limit the period over
which these rights will contribute to our cash flows. Accordingly,
we do not amortize our cable franchise rights but assess the carry-
ing value of our cable franchise rights annually, or more frequently
whenever events or changes in circumstances indicate that the
carrying amount may exceed its fair value (“impairment testing”), in
accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 142, “Goodwill and Other Intangible Assets,” (“SFAS
No. 142”).
We estimate the fair value of our cable franchise rights primarily
based on a discounted cash flow analysis that involves significant
judgment. We also consider multiples of operating income before
depreciation and amortization generated by underlying assets,
current market transactions, and profitability information in analyz-
ing the fair values indicated under the discounted cash flow
models.
If we were to determine the value of our cable franchise rights is
less than the carrying amount, we would recognize an impairment
for the difference between the estimated fair value and the carrying
value of the assets. For purposes of our impairment testing, we
have grouped the recorded values of our various cable franchise
rights into our cable divisions or units of account. We evaluate the
unit of account periodically to ensure our impairment testing is
performed at an appropriate level (see Note 2 to our consolidated
financial statements).
Since the adoption of SFAS No. 142 in 2002, we have not
recorded any significant impairments as a result of our impairment
testing. A future change in the unit of account could result in the
recognition of an impairment.
We could also record impairments in the future if there are
changes in long-term market conditions, in expected future
operating results, or in federal or state regulations that prevent us
from recovering the carrying value of these cable franchise rights.
Assumptions made about increased competition and a further
slowdown in the economy on a longer-term basis could impact the
valuations to be used in future annual impairment testing and
result in a reduction of fair values from those determined in the
July 1, 2008 annual impairment testing (“July 1 testing”). Such
assumptions and fair values will not be determined until the July 1,
2009 annual impairment testing is performed. Our July 1 testing,
which included assumptions related to the weakening economy,
Comcast 2008 Annual Report on Form 10-K 34