Time Warner Cable 2007 Annual Report Download - page 101

The purchase price allocation for the Adelphia Acquisition and the Exchange is as follows (in millions):
Depreciation/
Amortization
Periods
(a)
Intangible assets not subject to amortization (cable franchise rights) . . . . . . . . . . . . . . . . . . $10,487 non-amortizable
Intangible assets subject to amortization (primarily customer relationships) . . . . . . . . . . . . . 882 4 years
Property, plant and equipment (primarily cable television equipment) . . . . . . . . . . . . . . . . . 2,426 1-20 years
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162 not applicable
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 non-amortizable
Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (219) not applicable
Total purchase price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $14,852
(a)
Intangible assets and goodwill associated with the Adelphia Acquisition are deductible over a 15-year period for tax purposes and would
reduce net cash tax payments by more than $300 million per year, assuming the following: (i) straight-line amortization deductions over
15 years, (ii) sufficient taxable income to utilize the amortization deductions and (iii) a 40% effective tax rate.
The allocation of the purchase price for the Adelphia Acquisition and the Exchange primarily used a DCF
approach with respect to identified intangible assets and a combination of the cost and market approaches with
respect to property, plant and equipment. The DCF approach was based upon management’s estimated future cash
flows from the acquired assets and liabilities and utilized a discount rate consistent with the inherent risk of each of
the acquired assets and liabilities.
The systems acquired in connection with the Transactions have been included in the consolidated financial
statements since the closing of the Transactions. The systems previously owned by TWC that were transferred to
Comcast in connection with the Redemptions and the Exchange (the “Transferred Systems”) have been reflected as
discontinued operations in the consolidated financial statements for all periods presented.
Financial data for the Transferred Systems included in discontinued operations for the years ended
December 31, 2006 and 2005 is as follows (in millions, except per share data):
2006 2005
Years Ended December 31,
Totalrevenues...................................................... $ 457 $ 686
Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 285 $ 163
Income tax benefit (provision) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 753 (59)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,038 $ 104
Basic and diluted net income per common share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.05 $ 0.10
Average basic and diluted common shares outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . 990.4 1,000.0
Included in discontinued operations for the year ended December 31, 2006 were a pretax gain of $165 million
on the Transferred Systems and a net tax benefit of $800 million comprised of a tax benefit of $814 million on the
Redemptions, partially offset by a provision of $14 million on the Exchange. The tax benefit of $814 million
resulted primarily from the reversal of historical deferred tax liabilities (included in noncurrent liabilities of
discontinued operations) that had existed on systems transferred to Comcast in the TWC Redemption. The TWC
Redemption was designed to qualify as a tax-free split-off under section 355 of the Tax Code, and as a result, such
liabilities were no longer required. However, if the Internal Revenue Service were successful in challenging the tax-
free characterization of the TWC Redemption, an additional cash liability on account of taxes of up to an estimated
$900 million could become payable by the Company.
As a result of the closing of the Transactions, on July 31, 2006, TWC acquired systems with approximately
4.0 million basic video subscribers and disposed of the Transferred Systems, with approximately 0.8 million basic
video subscribers, for a net gain of approximately 3.2 million basic video subscribers.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)