Time Warner Cable 2008 Annual Report Download - page 117

the TW NY Exchange, the TW Internal Restructuring, the Special Dividend, the Recapitalization and the
Distribution collectively are referred to as the “Separation Transactions.”
The Separation Agreement contains customary covenants, and consummation of the Separation Transactions
is subject to customary closing conditions. As of February 12, 2009, all regulatory and other necessary govern-
mental reviews of the Separation Transactions have been satisfactorily completed. Time Warner and TWC expect
the Separation Transactions to be consummated in the first quarter of 2009.
In connection with the Separation Transactions, the Company has been authorized to effectuate a reverse stock
split of the TWC Common Stock at a 1-for-3 ratio.
5. TRANSACTIONS WITH ADELPHIA AND COMCAST
On July 31, 2006, a subsidiary of TWC, Time Warner NY Cable LLC (“TW NY Cable”) and Comcast
completed their respective acquisitions of assets comprising in the aggregate substantially all of the cable assets of
Adelphia Communications Corporation (“Adelphia”) (the “Adelphia Acquisition”). Additionally, on July 31, 2006,
immediately before the closing of the Adelphia Acquisition, Comcast’s interests in TWC and TWE were redeemed
(the “TWC Redemption” and the “TWE Redemption,” respectively, and, collectively, the “Redemptions”).
Following the Redemptions and the Adelphia Acquisition, on July 31, 2006, TW NY Cable 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 “Adelphia/Comcast Transactions”). In February 2007, Adelphia’s Chapter 11 reorganization plan
became effective. Under the terms of the reorganization plan, substantially all of the shares of TWC Class A
common stock that Adelphia received as part of the payment for the systems TW NY Cable acquired from Adelphia
were distributed to Adelphia’s creditors. As a result, 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, as amended. On March 1, 2007, TWC’s Class A common stock began trading on the New York Stock
Exchange under the symbol “TWC.”
As a result of the closing of the Adelphia/Comcast Transactions, on July 31, 2006, TWC acquired systems with
approximately 4.0 million basic video subscribers and disposed of the Transferred Systems (as defined below), with
approximately 0.8 million basic video subscribers, for a net gain of approximately 3.2 million basic video
subscribers. In addition, on July 28, 2006, ATC, a subsidiary of Time Warner, contributed its 1% common equity
interest and $2.4 billion preferred equity interest in TWE to TW NY, a newly created subsidiary of TWC and the
parent of TW NY Cable, in exchange for a 12.43% non-voting common stock interest in TW NY having an
equivalent fair value.
The systems acquired in connection with the Adelphia/Comcast Transactions have been included in the
consolidated financial statements since the closing of the Adelphia/Comcast 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.
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 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 Internal Revenue Code of 1986, as amended, 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.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)