Time Warner Cable 2006 Annual Report Download - page 69

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 Time Warner Entertainment-Advance/Newhouse Partnership
(“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.
The following schedule presents selected operating statement information of the Kansas City Pool for the years
ended December 31, 2006 and 2005 (in millions):
2006 2005
Year Ended
December 31,
Revenues. ....................................................... $795 $691
Costs of revenues
(a)
................................................ (399) (352)
Selling, general and administrative expenses
(a)
............................ (121) (117)
Depreciation ..................................................... (119) (128)
Amortization ..................................................... (1) (1)
Operating Income ................................................. $155 $ 93
(a)
Costs of revenues and selling, general and administrative expenses exclude depreciation.
If the consolidation of the Kansas City Pool had occurred on January 1, 2006, for the year ended December 31,
2006, (i) TWC’s revenues would have increased by $711 million, reflecting $795 million in revenues from the
Kansas City Pool, as noted above, offset by the $84 million in revenues that TWC recognized in 2006 in connection
with the provision of Road Runner services to TKCCP and (ii) TWC’s Operating Income would have increased by
$107 million, reflecting the $155 million of Operating Income generated by the Kansas City Pool, as noted above,
and $51 million of lower costs at TWC that would have resulted from TWC not serving the Houston Pool, offset by
the absence of $15 million of management fee income that was recognized by TWC in 2006 for the provision of
services to the Houston Pool and the absence of $84 million in revenues that TWC recognized in 2006 for the
provision of Road Runner services to TKCCP.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION — (Continued)