Time Warner Cable 2006 Annual Report Download - page 67

On February 13, 2007, Adelphia’s plan of reorganization under Chapter 11 of title 11 of the United States Code
became effective and, under applicable securities law regulations and provisions of the U.S. bankruptcy code, TWC
became a public company subject to the requirements of the Securities Exchange Act of 1934 on the same day.
Under the terms of the plan, as of February 20, 2007, approximately 75% of the shares of TWC Class A common
stock that Adelphia received as part of the payment for its assets in July 2006 have been distributed to Adelphia’s
creditors. The remaining shares are expected to be distributed during the coming months as remaining disputes are
resolved by the bankruptcy court, including 4% of such shares that are being held in escrow in connection with the
Adelphia Acquisition. It is expected that the TWC Class A common stock will begin to trade on the New York Stock
Exchange on or about March 1, 2007.
At the closing of the Adelphia Acquisition, TWC and Adelphia entered into a registration rights and sale
agreement (the “Adelphia Registration Rights and Sale Agreement”), which governed the disposition of the shares
of TWC’s Class A common stock received by Adelphia in the Adelphia Acquisition. Upon the effectiveness of
Adelphia’s plan of reorganization, the parties’ obligations under the Adelphia Registration Rights and Sale
Agreement terminated.
The Redemptions
On July 31, 2006, immediately before the closing of the Adelphia Acquisition, Comcast’s interests in TWC
and TWE were redeemed. Specifically, Comcast’s 17.9% interest in TWC was redeemed in exchange for 100% of
the capital stock of a subsidiary of TWC holding both cable systems serving approximately 589,000 subscribers and
approximately $1.857 billion in cash (the “TWC Redemption”). In addition, Comcast’s 4.7% interest in TWE was
redeemed in exchange for 100% of the equity interests of a subsidiary of TWE holding both cable systems serving
approximately 162,000 subscribers and approximately $147 million in cash (the “TWE Redemption” and, together
with the TWC Redemption, the “Redemptions”). The TWC Redemption was designed to qualify as a tax-free split-
off under section 355 of the Internal Revenue Code of 1986, as amended (the “Tax Code”). For accounting purposes,
the Redemptions were treated as an acquisition of Comcast’s minority interests in TWC and TWE and a disposition
of the cable systems that were transferred to Comcast. The purchase of the minority interests resulted in a reduction
of goodwill of $738 million related to the excess of the carrying value of the Comcast minority interests over the
total fair value of the Redemptions. In addition, the disposition of the cable systems resulted in an after-tax gain of
$945 million, included in discontinued operations, which is comprised of a $131 million pretax gain (calculated as
the difference between the carrying value of the systems acquired by Comcast in the Redemptions totaling
$2.969 billion and the estimated fair value of $3.100 billion) and a net tax benefit of $814 million, including the
reversal of historical deferred tax liabilities of approximately $838 million that had existed on systems transferred to
Comcast in the TWC Redemption.
The Exchange
Following the Redemptions and the Adelphia Acquisition, on July 31, 2006, TW NY and Comcast swapped
certain cable systems, most of which were acquired from Adelphia, in order to enhance TWC’s and Comcast’s
respective geographic clusters of subscribers (the “Exchange” and, together with the Adelphia Acquisition and the
Redemptions, the “Transactions”), and TW NY paid Comcast approximately $67 million for certain adjustments
related to the Exchange. The Company did not record a gain or loss on systems TW NYacquired from Adelphia and
transferred to Comcast in the Exchange because such systems were recorded at fair value in the Adelphia Acquisition.
The Company did, however, record a pretax gain of $34 million ($20 million net of tax) on the Exchange related to the
disposition of Urban Cable Works of Philadelphia, L.P. (“Urban Cable”). This gain is included as a component of
discontinued operations in the accompanying consolidated statement of operations in 2006.
The results of the systems acquired in connection with the Transactions have been included in the accom-
panying consolidated statement of operations since the closing of the Transactions on July 31, 2006. The systems
transferred to Comcast in connection with the Redemptions and the Exchange (the “Transferred Systems”),
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION — (Continued)