Comcast 2008 Annual Report Download - page 57

LLC”), that will focus on the deployment of a nationwide 4G wire-
less network. We, together with the other members of the investor
group, have invested $3.2 billion in Clearwire LLC. Our portion of
the investment was $1.05 billion. As a result of our investment, we
received ownership units (“ownership units”) of Clearwire LLC and
Class B stock (“voting stock”) of Clearwire Corporation, the pub-
licly traded holding company that controls Clearwire LLC. The
voting stock has voting rights equal to those of the publicly traded
Class A stock of Clearwire Corporation, but has only minimal
economic rights. We hold our economic rights through the owner-
ship units, which have limited voting rights. One ownership unit
combined with one share of voting stock are exchangeable into
one share of Clearwire Corporation’s publicly traded Class A
stock. At closing, we received 52.5 million ownership units and
52.5 million shares of voting stock, which represents an approx-
imate 7% ownership interest on a fully diluted basis. During the
first quarter of 2009, the purchase price per share is expected to
be adjusted based on the trading prices of Clearwire Corporation’s
publicly traded Class A stock. After the post-closing adjustment,
we anticipate that we will have an approximate 8% ownership
interest on a fully diluted basis.
In connection with the Clearwire transaction, we entered into an
agreement with Sprint that allows us to offer wireless services
utilizing certain of Sprint’s existing wireless networks and an
agreement with Clearwire LLC that allows us to offer wireless serv-
ices utilizing Clearwire’s next generation wireless broadband
network. We allocated a portion of our $1.05 billion investment to
the related agreements.
We will account for our investment under the equity method and
record our share of net income or loss one quarter in arrears.
Clearwire LLC is expected to incur losses in the early years of
operation, which under the equity method of accounting, will be
reflected in our future operating results and reduce the cost basis
of our investment. We evaluated our investment at December 31,
2008 to determine if an other than temporary decline in fair value
below our cost basis had occurred. The primary input in estimating
the fair value of our investment was the quoted market value of
Clearwire publicly traded Class A shares at December 31, 2008,
which declined significantly from the date of our initial agreement in
May 2008. As a result of the severe decline in the quoted market
value, we recognized an impairment in other income (expense) of
$600 million to adjust our cost basis in our investment to its esti-
mated fair value. In the future, our evaluation of other than
temporary declines in fair value of our investment will include a
comparison of actual operating results and updated forecasts to
the projected discounted cash flows that were used in making our
initial investment decision, other impairment indicators, such as
changes in competition or technology, as well as a comparison to
the value that would be obtained by exchanging our investment
into Clearwire Corporation’s publicly traded Class A shares.
Cost Method
AirTouch Communications, Inc.
We hold two series of preferred stock of AirTouch Communica-
tions, Inc. (“AirTouch”), a subsidiary of Vodafone, which are
redeemable in April 2020. As of December 31, 2008 and 2007,
the AirTouch preferred stock was recorded at $1.479 billion and
$1.465 billion, respectively.
As of December 31, 2008, the estimated fair value of the AirTouch
preferred stock was $1.357 billion, which is below our carrying
amount. The recent decline in fair value is attributable to changes
in interest rates. We have determined this decline to be temporary.
The factors considered were the length of time and the extent to
which the market value has been less than cost, the credit rating
of AirTouch, and our intent and ability to retain the investment for a
period of time sufficient to allow for recovery. Specifically, we
expect to hold the two series of AirTouch preferred stock until their
redemption in 2020.
The dividend and redemption activity of the AirTouch preferred
stock determines the dividend and redemption payments asso-
ciated with substantially all of the preferred shares issued by one of
our consolidated subsidiaries, which is a VIE. The subsidiary has
three series of preferred stock outstanding with an aggregate
redemption value of $1.750 billion. Substantially all of the preferred
shares are redeemable in April 2020 at a redemption value of
$1.650 billion. As of December 31, 2008 and 2007, the two
redeemable series of subsidiary preferred shares were recorded at
$1.468 billion and $1.465 billion, respectively, and those amounts
are included in other noncurrent liabilities. The one nonredeemable
series of subsidiary preferred shares was recorded at $100 million
as of both December 31, 2008 and 2007 and those amounts are
included in minority interest on our consolidated balance sheet.
Investment Income (Loss), Net
Year ended December 31 (in millions) 2008 2007 2006
Gains on sales and exchanges of
investments, net $8$ 151 $ 733
Investment impairment losses (28) (4) (4)
Unrealized gains (losses) on
trading securities and hedged
items (1,117) 315 339
Mark to market adjustments on
derivatives related to trading
securities and hedged items 1,120 (188) (238)
Mark to market adjustments on
derivatives 57 160 (18)
Interest and dividend income 149 199 212
Other (100) (32) (34)
Investment income (loss), net $89 $ 601 $ 990
55 Comcast 2008 Annual Report on Form 10-K