Time Warner Cable 2006 Annual Report Download - page 128

FCC Order Approving the Transactions
In its order approving the Adelphia Acquisition, the Federal Communications Commission (the “FCC”)
imposed conditions on TWC related to regional sports networks (“RSNs”), as defined in the order, and the
resolution of disputes pursuant to the FCC’s leased access regulations. In particular, the order provides that:
• neither TWC nor its affiliates may offer an affiliated RSN on an exclusive basis to any multichannel video
programming distributor (“MVPD”);
• TWC may not unduly or improperly influence:
• the decision of any affiliated RSN to sell programming to an unaffiliated MVPD; or
• the prices, terms, and conditions of sale of programming by an affiliated RSN to an unaffiliated MVPD;
• if an MVPD and an affiliated RSN cannot reach an agreement on the terms and conditions of carriage, the
MVPD may elect commercial arbitration to resolve the dispute;
• if an unaffiliated RSN is denied carriage by TWC, it may elect commercial arbitration to resolve the
dispute; and
• with respect to leased access, if an unaffiliated programmer is unable to reach an agreement with TWC, that
programmer may elect commercial arbitration to resolve the dispute, with the arbitrator being required to
resolve the dispute using the FCC’s existing rate formula relating to pricing terms.
The application and scope of these conditions, which will expire in July 2012, have not yet been tested. TWC
retains the right to obtain FCC and judicial review of any arbitration awards made pursuant to these conditions.
Dissolution of TKCCP
TKCCP is a 50-50 joint venture between TWE-A/N (a partnership of TWE and the Advance/Newhouse
Partnership) and Comcast. In accordance with the terms of the TKCCP partnership agreement, on July 3, 2006,
Comcast notified TWC of its election to trigger the dissolution of the partnership and its decision to allocate all of
TKCCP’s debt, which totaled approximately $2 billion, to the pool of assets consisting of the Houston cable systems
(the “Houston Pool”). On August 1, 2006, TWC notified Comcast of its election to receive the Kansas City Pool. On
October 2, 2006, TWC received approximately $630 million from Comcast due to the repayment of debt owed by
TKCCP to TWE-A/N that had been allocated to the Houston Pool. Since July 1, 2006, TWC has been entitled to
100% of the economic interest in the Kansas City Pool (and has recognized such interest pursuant to the equity
method of accounting), and it has not been entitled to any economic benefits of ownership from the Houston Pool.
On January 1, 2007, TKCCP distributed its assets to its partners. TWC received the Kansas City Pool, which
served approximately 788,000 basic video subscribers as of December 31, 2006, and Comcast received the Houston
Pool, which served approximately 795,000 basic video subscribers as of December 31, 2006. TWC began
consolidating the results of the Kansas City Pool on January 1, 2007. As a result of the asset distribution, TKCCP
no longer has any assets, and TWC expects that TKCCP will be formally dissolved in 2007. For accounting
purposes, the distribution of TKCCP’s assets has been treated as a sale of the Company’s 50% interest in the
Houston Pool, and, as a result, the Company expects to record a pretax gain of approximately $150 million in the
first quarter of 2007.
6. MERGER-RELATED AND RESTRUCTURING COSTS
Merger-related Costs
Through December 31, 2006, the Company has expensed non-capitalizable merger-related costs associated
with the Transactions of approximately $46 million, of which approximately $38 million and $8 million was
incurred during 2006 and 2005, respectively. The merger-related costs are related primarily to consulting fees
123
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)