GE 2011 Annual Report Download - page 87

GE 2011 ANNUAL REPORT 85
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Note 2.
Assets and Liabilities of Businesses Held for Sale and
Discontinued Operations
Assets and Liabilities of Businesses Held for Sale
NBC UNIVERSAL
In December 2009, we entered into an agreement with Comcast
Corporation (Comcast) to transfer the assets of the NBCU busi-
ness to a newly formed entity, comprising our NBCU business and
Comcast’s cable networks, regional sports networks, certain
digital properties and certain unconsolidated investments, in
exchange for cash and a 49% interest in the newly-formed entity.
On March 19, 2010, NBCU entered into a three-year credit
agreement and a 364-day bridge loan agreement. On April 30,
2010, NBCU issued $4,000 million of senior, unsecured notes with
maturities ranging from 2015 to 2040 (interest rates ranging from
3.65% to 6.40%). On October 4, 2010, NBCU issued $5,100 million
of senior, unsecured notes with maturities ranging from 2014 to
2041 (interest rates ranging from 2.10% to 5.95%). Subsequent
to these issuances, the credit agreement and bridge loan agree-
ments were terminated, with a $750 million revolving credit
agreement remaining in effect. Proceeds from these issuances
were used to repay $1,678 million of existing debt and pay a divi-
dend of $7,394 million to GE.
On September 26, 2010, we acquired approximately 38% of
Vivendi S.A.’s (Vivendi) 20% interest in NBCU (7.7% of NBCU’s
outstanding shares) for $2,000 million. In January 2011 and prior
to the transaction with Comcast, we acquired the remaining
Vivendi interest in NBCU (12.3% of NBCU’s outstanding shares) for
$3,673 million and made an additional payment of $222 million
related to the previously purchased shares.
On January 28, 2011, we transferred the assets of the NBCU
business and Comcast transferred certain of its assets to a newly
formed entity, NBCUniversal LLC (NBCU LLC). In connection with
the transaction, we received $6,176 million in cash from Comcast
(which included $49 million of transaction-related cost reim-
bursements) and a 49% interest in NBCU LLC. Comcast holds the
remaining 51% interest in NBCU LLC.
With respect to our 49% interest in NBCU LLC, we hold
redemption rights, which, if exercised, would require NBCU LLC
or Comcast to purchase (either directly or indirectly by GE trans-
ferring common stock of our holding company that owns 49%
of NBCU LLC) half of our ownership interest after three and a half
years and the remaining half after seven years, subject to cer-
tain exceptions, conditions and limitations. Our interest in NBCU
LLC also is subject to call provisions, which, if exercised, allow
Comcast to purchase our interest (either directly or indirectly) at
specifi ed times subject to certain exceptions. The redemption
prices for such transactions are determined based on a contrac-
tually specifi ed formula.
In connection with the transaction, we also entered into a
number of agreements with Comcast governing the operation
of the venture and transitional services, employee, tax and other
matters. Under the operating agreement, excess cash generated
by the operations of NBCU LLC will be used to reduce borrow-
ings, except for distributions in amounts necessary to pay taxes
on NBCU LLC’s profi ts. In addition, Comcast is obligated to share
with us potential tax savings associated with Comcast’s purchase
of its NBCU LLC member interest, if realized. We did not recognize
these potential future payments as consideration for the sale, but
will record such payments in income as they are received.
Following the transaction, we deconsolidated NBCU and we
account for our investment in NBCU LLC under the equity method.
We recognized a pre-tax gain on the sale of $3,705 million
($526 million after tax). In connection with the sale, we recorded
income tax expense of $3,179 million, refl ecting the low tax basis
in our investment in the NBCU business and the recognition of
deferred tax liabilities related to our 49% investment in NBCU LLC.
As our investment in NBCU LLC is structured as a partnership for
U.S. tax purposes, U.S. taxes are recorded separately from the
equity investment.
At December 31, 2011, the carrying amount of our equity
investment in NBCU LLC was $17,955 million, reported in the
“All other assets” caption in our Statement of Financial Position.
Deferred tax liabilities related to our NBCU LLC investment
were $4,880 million at December 31, 2011 and were reported
in the “Deferred income taxes” caption in our Statement of
Financial Position.
We valued the initial carrying value of our investment in NBCU
LLC based on a combination of income and market approaches.
An income approach was used to determine the fair values of
NBCU LLC’s underlying businesses and, when available and
appropriate, an analysis of comparative market multiples was
also undertaken. The resulting fair values were weighted equally
between the two approaches. For purposes of the income
approach, fair value was determined based on the present values
of estimated future cash fl ows discounted at appropriate risk-
adjusted rates. We used NBCU LLC management projections to
estimate future cash fl ows and included an estimate of long-term
future growth rates based on management’s most recent views
of the long-term outlook for its businesses. We believe that these
assumptions are consistent with market participant assump-
tions. We derived discount rates using a weighted average cost of
capital. The cost of equity was determined using the capital asset
pricing model and the cost of debt fi nancing was based on pub-
lished rates for industries relevant to NBCU LLC. Under the market
approach, the most signifi cant assumption was the price multiple,
which was selected based on the operating performance and
fi nancial condition of comparable publicly traded companies in
industries similar to those of the NBCU LLC businesses. As NBCU
LLC is a partnership, the fair value of our investment in NBCU LLC
was determined based upon the amount a market participant
would pay for the partnership interest taking into consideration
the tax benefi t associated with such a purchase. The value of our
investment also incorporates the fair value of the redemption fea-
tures described above, which was determined based on an option
pricing framework that incorporates the specifi c contractual
terms of the redemption features.