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8-K/A - FORM 8-K AMENDMENT NO. 1 - COMCAST CORPd654855d8ka.htm

Exhibit 99.2

Comcast Corporation and Sky plc Unaudited Pro Forma Condensed Combined Financial Statements

On October 9, 2018, in connection with Comcast Corporation’s (“Comcast”, the “Company” or “we”) offer to acquire the share capital of Sky plc (“Sky”), we acquired a controlling interest in Sky through a series of purchases of Sky shares at our offer price of £17.28 per Sky share. In the fourth quarter of 2018, we acquired the remaining Sky shares and now own 100% of Sky’s equity interests (the “Acquisition”). Total cash consideration for the Acquisition was £30.2 billion (approximately $39.4 billion using the exchange rates on the purchase dates).

Sky is a leading media and entertainment company in Europe. It is a direct-to-consumer business, providing satellite and over the top video, internet, voice, and wireless phone services. Sky is also a content business, operating entertainment networks, the Sky News broadcast network and Sky Sports networks.

To finance the Acquisition, we:

 

   

issued $27.0 billion aggregate amount of senior unsecured fixed and floating rate notes that will mature between 2020 and 2058,

 

   

borrowed £6.6 billion ($8.7 billion using the exchange rates on the dates of borrowings) under a £7.0 billion unsecured sterling-denominated term loan credit agreement, and

 

   

borrowed $3.0 billion under a $3.0 billion unsecured dollar-denominated term loan credit agreement.

The remaining cash consideration was funded using cash on hand. As of October 9, 2018, Sky had outstanding indebtedness that will be consolidated in our financial statements with an aggregate fair value amount of approximately $11 billion using the exchange rate as of such date.

The unaudited pro forma condensed combined financial statements (“pro forma financial information”) have been prepared based on the historical financial statements of Comcast and Sky, and are intended to provide you with information about how the Acquisition and related financings might have affected our historical financial statements. The unaudited pro forma condensed combined statements of income for the six months ended June 30, 2018, and for the year ended December 31, 2017, combines the historical consolidated statement of income of Comcast for the corresponding periods, derived from the Company’s Quarterly Report on Form 10-Q filed with the U.S. Securities and Exchange Commission (“SEC”) on July 26, 2018, and Annual Report on Form 10-K filed with the SEC on January 31, 2018 (adjusted for the adoption of the new revenue recognition standard; see Note 1), with the respective historical consolidated income statement information of Sky as indicated below as if the Acquisition had occurred on January 1, 2017. The unaudited pro forma condensed combined balance sheet as of June 30, 2018, combines the historical unaudited condensed consolidated balance sheet of Comcast, derived from the Company’s Quarterly Report on Form 10-Q filed with the SEC on July 26, 2018, and the historical audited consolidated balance sheet of Sky as of June 30, 2018, as filed in this Current Report on Form 8-K/A as if the Acquisition had occurred on June 30, 2018.

The historical financial information of Sky, as published on Sky’s website (www.sky.com/corporate), in the unaudited pro forma condensed combined statement of income for the six months ended June 30, 2018, was derived by subtracting the historical unaudited income statement of Sky for the six months ended December 31, 2017, from the historical audited income statement of Sky for the year ended June 30, 2018. The historical financial information of Sky in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2017, was derived by adding the historical unaudited income statement of Sky for the six months ended December 31, 2017, and the historical income statement of Sky for the year ended June 30, 2017, and subtracting the historical unaudited income statement of Sky for the six months ended December 31, 2016.

The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma financial information and:

 

   

the historical unaudited financial statements of Comcast Corporation for the quarter ended June 30, 2018, included in Comcast’s Quarterly Report on Form 10-Q filed with the SEC on July 26, 2018;

 

   

the historical audited financial statements of Comcast Corporation for the year ended December 31, 2017, included in Comcast’s Annual Report on Form 10-K filed with the SEC on January 31, 2018; and

 

   

the historical audited financial statements of Sky for the year ended June 30, 2018, as filed in this Current Report on Form 8-K/A.

The unaudited pro forma condensed combined financial statements are presented using the acquisition method of accounting, with Comcast as the acquirer. The unaudited pro forma condensed combined financial statements will differ from our final acquisition accounting for a number of reasons, including that our estimates of fair values of assets acquired and liabilities assumed are preliminary and subject to change when our formal valuation is finalized. The Company did not have access to Sky financial information beyond what was publicly available until after the takeover offer for Sky was successful. As a result, the Company’s preliminary valuations were prepared in a limited timeframe. The differences that will occur between the preliminary estimates and the final acquisition accounting could be material.

The unaudited pro forma condensed combined financial statements are presented for informational purposes only. They have been prepared in accordance with Article 11 of Regulation S-X of the SEC and are not necessarily indicative of what our financial position or results of operations actually would have been had we completed the Acquisition as of the dates indicated, nor do they purport to project the future financial position or operating results of the combined company. The pro forma financial information is presented for illustrative purposes only and does not reflect the costs of any integration activities or cost savings or synergies that maybe achieved as a result of the Acquisition.

 

1


Comcast Corporation

Unaudited Pro Forma Condensed Combined Statement of Income

For the Six Months Ended June 30, 2018

 

in millions (USD) except per share data   

 

Historical

    IFRS to U.S.
GAAP
Adjustments

(Note 3)
    Financing
Adjustments

(Note 4)
    Purchase
Accounting
Adjustments

(Note 5)
    Pro
Forma
Combined
 
     Comcast     Sky
(Note 2)
 

Revenue

   $ 44,526     $ 9,419     $ 593  3a, 3b    $ —       $ (123 )5k    $ 54,415  

Costs and Expenses:

            

Programming and production

     13,729       4,573       63  3b        (256 )5f, 5k      18,109  

Other operating and administrative

     12,879       2,738       682  3a, 3b        (77 )5e, 5k, 5l      16,222  

Advertising, marketing and promotion

     3,257       682       14  3b        (6 )5l      3,947  

Depreciation

     4,032       334            5b      4,366  

Amortization

     1,170       456       (44 )3b        213  5d      1,795  

Other operating gains

     (200             (200
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     34,867       8,783       715       —         (126     44,239  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     9,659       636       (122       3       10,176  

Interest expense

     (1,583     (198       (646 )4b      36  5h      (2,391

Investment and other income (loss), net

     203       87       (67 )3b          223  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     8,279       525       (189     (646     39       8,008  

Income tax (expense) benefit

     (1,895     (19     38  5g      136  4c      (8 ) 5g      (1,748
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     6,384       506       (151     (510     31       6,260  

Less: Net income (loss) attributable to noncontrolling interest and redeemable subsidiary preferred stock

     50       1             51  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Comcast Corporation

   $ 6,334     $ 505     $ (151   $ (510   $ 31     $ 6,209  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share attributable to Comcast Corporation shareholders

   $ 1.37             $ 1.35  5j 

Diluted earnings per common share attributable to Comcast Corporation shareholders

   $ 1.36             $ 1.33  5j 

 

2


Comcast Corporation

Unaudited Pro Forma Condensed Combined Statement of Income

For the Twelve Months Ended December 31, 2017

 

in millions (USD) except per share data   

 

Historical

    IFRS to U.S.
GAAP
Adjustments

(Note 3)
    Financing
Adjustments

(Note 4)
    Purchase
Accounting
Adjustments

(Note 5)
    Pro
Forma
Combined
 
     Comcast
(Note 1)
    Sky
(Note 2)
 

Revenue

   $ 85,029     $ 17,079     $ 1,154  3a, 3b    $ —       $ (291 )5k    $ 102,971  

Costs and Expenses:

            

Programming and production

     25,355       8,136       58  3b        (523 )5f, 5k      33,026  

Other operating and administrative

     25,456       4,742       1,312  3a, 3b        (131 )5e, 5k, 5l      31,379  

Advertising, marketing and promotion

     6,512       1,525       (94 )3b        (10 )5l      7,933  

Depreciation

     7,914       470            5b      8,384  

Amortization

     2,216       816       (73 )3b        427  5d      3,386  

Other operating gains

     (442             (442
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total costs and expenses

     67,011       15,689       1,203       —         (237     83,666  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating income

     18,018       1,390       (49     —         (54     19,305  

Interest expense

     (3,086     (317       (1,294 )4b      71  5h      (4,626

Investment and other income (loss), net

     421       101             522  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Income before income taxes

     15,353       1,174       (49     (1,294     17       15,201  

Income tax (expense) benefit

     7,569       (117     10  5g      453   4c      (6 ) 5g      7,909  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income

     22,922       1,057       (39     (841     11       23,110  

Less: Net income (loss) attributable to noncontrolling interest and redeemable subsidiary preferred stock

     187       (6           181  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net income attributable to Comcast Corporation

   $ 22,735     $ 1,063     $ (39   $ (841   $ 11     $ 22,929  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Basic earnings per common share attributable to Comcast Corporation shareholders

   $ 4.83             $ 4.87  5j 

Diluted earnings per common share attributable to Comcast Corporation shareholders

   $ 4.75             $ 4.78  5j 

 

3


Comcast Corporation

Unaudited Pro Forma Condensed Combined Balance Sheet

As of June 30, 2018

 

in millions (USD)   

 

Historical

     IFRS to U.S.
GAAP
Adjustments

(Note 3)
    Financing
Adjustments

(Note 4)
    Purchase
Accounting
Adjustments
(Note 5)
    Pro
Forma
Combined
 
     Comcast      Sky
(Note 2)
 

Assets

              

Current Assets:

              

Cash and cash equivalents

   $ 5,726      $ 2,142      $ —       $ 38,806  4a    $ (39,838 )5a    $ 6,836  

Receivables, net

     8,847        1,290            (70 )5l      10,067  

Programming rights

     1,219        2,546            (70 )5l      3,695  

Other current assets

     2,423        279            —         2,702  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current assets

     18,215        6,257        —         38,806       (39,978     23,300  

Film and television costs

     7,411        144              7,555  

Investments

     7,438        210              7,648  

Property and equipment, net of accumulated depreciation

     39,355        3,365             5b      42,720  

Franchise rights

     59,365                 59,365  

Goodwill

     36,872        6,567            25,270  5c      68,709  

Other intangible assets, net of accumulated amortization

     18,848        5,984        (38 )3b        14,553  5d      39,347  

Other noncurrent assets, net

     3,744        1,248        38  3b        21  5l      5,051  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total assets

   $ 191,248      $ 23,775      $ —       $ 38,806     $ (134   $ 253,695  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Liabilities and Equity

              

Current Liabilities:

              

Accounts payable and accrued expenses related to trade creditors

   $ 6,940      $ 2,780      $ —       $ —       $ (70 )5l    $ 9,650  

Accrued participations and residuals

     1,731                 1,731  

Deferred revenue

     1,746        700        53  3b          2,499  

Accrued expenses and other current liabilities

     5,956        2,958        (22 )3b        294  5e      9,186  

Current portion of long-term debt

     2,634        590              3,224  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total current liabilities

     19,007        7,028        31       —         224       26,290  

Long-term debt, less current portion

     61,946        10,241          38,806  4a      452  5h      111,445  

Deferred income taxes

     25,140        339            2,665  5g      28,144  

Other noncurrent liabilities

     12,069        858            2,092  5f, 5l      15,019  

Commitments and contingencies

              

Redeemable noncontrolling interests and redeemable subsidiary preferred stock

     1,343                 1,343  

Total shareholders’ equity

     70,694        5,304        (31 )3b        (5,567 )5e, 5i      70,400  

Noncontrolling interests

     1,049        5              1,054  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total equity

     71,743        5,309        (31 )3b      —         (5,567     71,454  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Total liabilities and equity

   $ 191,248      $ 23,775      $ —       $ 38,806     $ (134   $ 253,695  
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

 

4


Notes to Unaudited Pro Forma Condensed Combined Financial Statements

1. Basis of Presentation

The accompanying pro forma financial information presents the unaudited pro forma condensed combined statements of income and balance sheet of Comcast based on the historical financial statements of Comcast and Sky after giving effect to the Acquisition, related financings and pro forma adjustments as described in these notes. Pro forma adjustments are included only to the extent they are (i) directly attributable to the Acquisition, (ii) factually supportable, and (iii) with respect to the statement of income only, expected to have a continuing impact on the combined results. The pro forma financial information is presented for illustrative purposes only and does not reflect the costs of any integration activities or cost savings or synergies that may be achieved as a result of the Acquisition. The unaudited pro forma condensed combined statements of income do not reflect non-recurring expenses directly attributable to the Acquisition, including fees to attorneys, accountants and other professional advisors, and other transaction-related costs. However, the impact of such expenses incurred subsequent to the balance sheet date are reflected in the unaudited pro forma condensed combined balance sheet as accrued liabilities. This amount does not include estimates for fees that are not readily determinable or factually supportable. The unaudited pro forma condensed combined statements of income and the unaudited pro forma condensed combined balance sheet give effect to the Acquisition as if it had occurred on January 1, 2017, and June 30, 2018, respectively.

The historical consolidated financial statements of Comcast are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and are shown in U.S. dollars. The historical consolidated financial statements of Sky are prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”), and are translated into U.S. dollars, for purposes of the pro forma financial information. The revenue and expenses were translated using average exchange rates for the periods noted, and the assets and liabilities were translated using the exchange rate as of the balance sheet date.

The Acquisition will be accounted for using the acquisition method of accounting, which requires an allocation of the purchase price to the net assets acquired, based on their fair values as of the date of the Acquisition. Pro forma purchase price allocation adjustments have been made for the purpose of providing pro forma financial information based on current estimates and currently available information. These amounts are preliminary and subject to revision based on final determination of fair value and the final allocation of the purchase price to the assets and liabilities of Sky, and the revisions could be material. The table below summarizes the preliminary allocation of purchase price to the assets acquired and liabilities assumed for purposes of the pro forma financial information as if the Acquisition closed on June 30, 2018 (using exchange rates as of that date, which will differ from those as of October 9, 2018):

 

     (in millions)  

Consideration transferred

   $ 39,838  
  

 

 

 

Preliminary purchase price allocation

 

Cash

   $ 2,142  

Accounts receivable and other current assets

     1,569  

Film and television costs

     2,620  

Property and equipment

     3,365  

Intangible assets

     20,499  

Accounts payable, accrued liabilities and other current liabilities

     (6,467

Long-term debt

     (11,283

Deferred tax assets (liabilities), net

     (3,004

Other noncurrent assets (liabilities), net

     (1,440
  

 

 

 

Fair value of identifiable net assets acquired

     8,001  

Goodwill

   $ 31,837  
  

 

 

 

 

5


Comcast Adoption of Revenue Recognition Standard

Effective January 1, 2018, Comcast adopted the new accounting standard related to revenue recognition using the full retrospective method. Upon adoption, Comcast also implemented changes in the presentation of certain revenues and expenses, primarily in Comcast’s Cable Communications segment. The adoption of the new standard did not have a material impact on our consolidated results of operations or financial position. However, Comcast historical information included in the unaudited pro forma condensed combined statement of income for the year ended December 31, 2017, has been adjusted to reflect the adoption of the new standard to be presented on a comparable basis to the six months ended June 30, 2018.

The tables below present the effects on the Comcast historical consolidated statement of income for the year ended December 31, 2017.

 

     Year Ended December 31, 2017  
(in millions)    Previously
Reported
     Effects of
Adoption
     As
Adjusted
 

Revenue

   $ 84,526      $ 503      $ 85,029  

Total costs and expenses

   $ 66,539      $ 472      $ 67,011  

Operating income

   $ 17,987      $ 31      $ 18,018  

Net income attributable to Comcast Corporation

   $ 22,714      $ 21      $ 22,735  

2. Sky Historical Financial Statements

Sky historical balances were derived from Sky’s historical financial statements described in the introduction and are presented under IFRS and converted from British pounds to U.S. dollars based on historical exchange rates. The historical audited consolidated income statements of Sky were translated using the average exchange rate for the six months ended June 30, 2018 (1.38 $/£) and the average exchange rate for the year ended December 31, 2017 (1.29 $/£). The historical audited consolidated balance sheet of Sky as of June 30, 2018, was translated using the spot rate on June 30, 2018 (1.32 $/£).

The historical balances reflect certain reclassifications of Sky’s income statement and balance sheet categories to conform to Comcast’s presentation and are summarized below:

 

Sky Financial Statement Line

   Sky
Historical
Amount
     Comcast Financial Statement Line  
(in millions)              

Income Statement for the six months ended

June 30, 2018

     

Operating expense

   $ 4,573        Programming and production  

Operating expense

   $ 2,738        Other operating and administrative  

Operating expense

   $ 682        Advertising, marketing and promotion  

Operating expense

   $ 334        Depreciation  

Operating expense

   $ 456        Amortization  

Income Statement for the year ended

December 31, 2017

     

Operating expense

   $ 8,136        Programming and production  

Operating expense

   $ 4,742        Other operating and administrative  

Operating expense

   $ 1,525        Advertising, marketing and promotion  

Operating expense

   $ 470        Depreciation  

Operating expense

   $ 816        Amortization  

 

6


Sky Financial Statement Line

   Sky
Historical
Amount
     Comcast Financial Statement Line
(in millions)            

Balance Sheet as of June 30, 2018

Assets

Trade and other receivables, current

   $ 895     

Inventory

   $ 1,651     
  

 

 

    
   $ 2,546      Programming rights
  

 

 

    

Trade and other receivables, current

   $ 97     

Inventory

   $ 73     

Current tax assets

   $ 3     

Derivative financial assets

   $ 106     
  

 

 

    
   $ 279      Other current assets
  

 

 

    

Investment in joint ventures and associates

   $ 55     

Available-for-sale investments

   $ 155     
  

 

 

    
   $ 210      Investments
  

 

 

    

Deferred tax assets

   $ 561     

Derivative financial assets

   $ 628     

Trade and other receivables, noncurrent

   $ 59     
  

 

 

    
   $ 1,248      Other noncurrent assets, net
  

 

 

    

Liabilities

Trade and other payables, current

   $ 700      Deferred revenue
  

 

 

    

Trade and other payables, current

   $ 2,577     

Current tax liabilities

   $ 184     

Derivative financial liabilities, current

   $ 29     

Provisions, current

   $ 168     
  

 

 

    
   $ 2,958      Accrued expenses and other current liabilities
  

 

 

    

Derivative financial liabilities, noncurrent

   $ 565     

Trade and other payables, noncurrent

   $ 186     

Provisions, noncurrent

   $ 107     
  

 

 

    
   $ 858      Other noncurrent liabilities
  

 

 

    

Further review may identify additional reclassifications that could have a material impact on the unaudited pro forma financial information of the combined company. At this time, Comcast is not aware of any reclassifications that would have a material impact on the unaudited pro forma financial information that are not reflected in the pro forma adjustments.

Following the Acquisition, Sky will be presented as a separate reportable segment in Comcast’s consolidated financial statements. Comparability of Sky’s results for the six months ended June 30, 2018 was affected by contract termination costs and costs related to a settlement totaling $95 million. These costs have not been adjusted in the unaudited pro forma information, as they are not directly attributable to the Acquisition.

3. IFRS to U.S. GAAP Adjustments

IFRS differs in certain respects from U.S. GAAP. The following adjustments have been made to align Sky’s historical accounting policies under IFRS to Comcast’s accounting policies under U.S. GAAP for purposes of this pro forma presentation.

 

7


  a)

Advertising

When recognizing revenue from the sale of advertising units, where Sky sells advertising on television channels owned by third parties, revenue will now be recognized on a gross basis. Previously, Sky recognized this advertising revenue on a net basis. This results in increases to revenue and to other operating and administrative expense of $634 million and $1.2 billion for the six months ended June 30, 2018 and for the year ended December 31, 2017, respectively.

 

  b)

Amounts consist of other immaterial conforming adjustments.

Further review may identify additional accounting policy differences that, when conformed, could have a material impact on the pro forma financial information of the combined company. At this time, Comcast is not aware of any accounting policy differences that would have a material impact on the pro forma financial information that are not reflected in the pro forma adjustments.

4. Financing Adjustments

To finance the Acquisition, Comcast borrowed approximately $38.8 billion, with the remaining amount of consideration funded using cash on hand for total cash consideration of approximately $39.8 billion using the exchange rate on June 30, 2018 (1.32 $/£).

 

  a)

Represents an increase in cash and cash equivalents and long-term debt, less current portion, for issuance of senior notes and term loan borrowings, net of the deferred financing costs, as described in the introduction above.

 

  b)

Represents an increase in interest expense of $646 million and $1.3 billion related to the incremental borrowings for the six months ended June 30, 2018, and the year ended December 31, 2017, respectively. In determining pro forma interest expense, Comcast used the weighted average interest rate of 3.48% for borrowings used to fund the Acquisition. A hypothetical 1/8 percentage point increase/decrease in the weighted average interest rate used would result in an increase/decrease of approximately $19 million in annual pro forma interest expense.

 

  c)

Income tax effects on the financing adjustments were calculated based on the U.S. federal statutory rate of 21% and 35% for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively.

5. Purchase Accounting Adjustments

The unaudited pro forma financial information reflects certain Acquisition related adjustments and are as follows:

 

  a)

Cash and cash equivalents

Represents a net decrease in cash and cash equivalents of $39.8 billion consisting of purchases of Sky shares at £17.28 per Sky share using the exchange rate as of June 30, 2018.

 

  b)

Property and equipment

For purposes of this unaudited pro forma financial information, Comcast used the assumption that the carrying values of Sky property and equipment approximates its fair value. As a result, no adjustment has been made to property and equipment depreciation expense. This is a preliminary assumption based on information currently available and is subject to revision based on the final determination of fair value. The amount of incremental depreciation will fluctuate based on the final valuation of property and equipment. A hypothetical 10% increase/decrease in the valuation of property and equipment would result in an increase/decrease of approximately $55 million of depreciation expense on an annual basis.

 

  c)

Goodwill

Represents a net adjustment to pro forma goodwill resulting from the preliminary application of acquisition accounting to the assets and liabilities of Sky.

 

  d)

Intangible assets

The $14.6 billion increase in other intangible assets, net of accumulated amortization, reflects the preliminary valuation of intangible assets as follows:

 

(in millions)    Preliminary
Fair
Value
     Adjustment      Useful Life
(in years)
     Six months
ended
June 30,
2018
     Year ended
December 31,
2017
 

Intangible Asset

   Incremental Amortization  

Customer relationships

   $ 11,913      $ 8,655        12 to 20      $ 213      $ 427  

Tradenames

   $ 6,656      $ 5,898        Indefinite        N/A        N/A  

Developed technology

   $ 1,930      $ —          5        N/A        N/A  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 20,499      $ 14,553         $ 213      $ 427  
  

 

 

    

 

 

       

 

 

    

 

 

 

 

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Customer relationships consist of direct to consumer, distributor and advertiser relationships. The amortization of customer relationships is based on the preliminary valuation and the estimated lives of customers following the Acquisition date. The estimated customer lives are assumed to range from 12 to 20 years based on expected customer attrition using the historical churn for Sky. For purposes of this pro forma financial information, a straight-line method has been applied. The amount of amortization will change based on the final valuation and the final determination of customer lives, and may change if it is determined that an accelerated method of amortization is more appropriate. Such a change could be material. A hypothetical 10% increase/decrease in the valuation of customer relationships would result in an increase/decrease of approximately $123 million of annual amortization expense on a straight-line basis.

 

  e)

Accrued expenses and other current liabilities

The $294 million increase in accrued expenses and other current liabilities and the corresponding offset to retained earnings reflects expenses incurred for transaction-related costs associated with the Acquisition, including the U.K. share acquisition tax and success based investment banker fees. This amount does not include estimates for fees that are not readily determinable or factually supportable. These costs are excluded from the unaudited pro forma condensed combined statements of income as they are non-recurring charges directly attributable to the Acquisition. The decrease in other operating and administrative expenses reflects the elimination of other non-recurring transaction-related costs recorded in the historical financial statements of Comcast and Sky of $44 million and $68 million for the six months ended June 30, 2018 and the year ended December 31, 2017, respectively.

 

  f)

Contractual obligations

The approximately $2.0 billion increase to other noncurrent liabilities reflects preliminary valuation adjustments related to Sky’s contractual obligations. The resulting decreases in programming and production expense were $154 million and $273 million for the six months ended June 30, 2018, and the year ended December 31, 2017, respectively.

 

  g)

Income taxes

The $2.7 billion increase in deferred tax liabilities reflects the preliminary estimate of deferred tax liabilities recognized on new book to tax differences in acquired intangible assets. This amount and the income tax expense impact of Sky pro forma adjustments were calculated using an estimated blended statutory tax rate of 20% for all periods.

 

  h)

Debt

The increase in long-term debt, less current portion, reflects the adjustment to record Sky’s debt at fair value as the historical Sky debt is recorded at book value. As a result of the increase in fair value of debt, interest expense decreased $36 million and $71 million for the six months ended June 30, 2018 and year ended December 31, 2017, respectively.

 

  i)

Sky shareholders’ equity

The $5.6 billion decrease reflects the elimination of the historical share capital and retained earnings of Sky.

 

  j)

Earnings per share

The pro forma combined diluted earnings per share presented below for the six months ended June 30, 2018 and the year ended December 31, 2017, reflect the dilutive effect of Comcast issued replacement share-based compensation awards for unvested awards based in Sky shares that were held by Sky employees at the time of the Acquisition:

 

(in millions, except per share data)

   Six Months
Ended
June 30,
2018
     Year Ended
December 31,
2017
 

Pro forma net income

   $ 6,209      $ 22,929  

Basic weighted average Comcast shares outstanding

     4,616        4,708  

Pro forma basic earnings per share

   $ 1.35      $ 4.87  

Diluted weighted average Comcast shares outstanding

     4,674        4,786  

Comcast replacement awards

     9        9  
  

 

 

    

 

 

 

Pro forma diluted weighted average Comcast shares outstanding

     4,683        4,795  

Pro forma diluted earnings per share

   $ 1.33      $ 4.78  

 

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  k)

Intercompany transactions

These adjustments reflect the elimination of intercompany revenue and expenses related to transactions between Comcast, primarily with its wholly-owned subsidiary NBCUniversal Media, LLC, and Sky. The intercompany eliminations on the balance sheet were not material.

 

(in millions)

  

Six Months Ended
June 30,

2018

  

Year Ended
December 31,
2017

Revenue

   ($123)    ($291)

Programming and production

   ($102)    ($250)

Other operating and administrative

   ($21)    ($41)

 

  l)

Amounts consist of other immaterial purchase price allocation adjustments

Further review may identify additional Acquisition related adjustments that could have a material impact on the unaudited pro forma financial information of the combined company. At this time, Comcast is not aware of any additional Acquisition related adjustments that would have a material impact on the unaudited pro forma financial information that are not reflected or disclosed in the pro forma adjustments.

 

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