Time Warner Cable 2006 Annual Report Download - page 110

In November 2005, TWC and several other cable companies, together with Sprint Nextel Corporation
(“Sprint”), announced the formation of a joint venture to develop integrated video entertainment, wireline and
wireless data and communications products and services. In 2006, TWC began offering a bundle that includes
Sprint wireless voice service in limited operating areas and will continue to roll out this product during 2007.
Some of TWC’s principal competitors, in particular, direct broadcast satellite operators and incumbent local
telephone companies, either offer or are making significant capital investments that will allow them to offer services
that provide features and functions comparable to the video, data and/or voice services that TWC offers and they are
aggressively seeking to offer them in bundles similar to TWC’s.
In addition to the subscription services described above, TWC also earns revenues by selling advertising time
to national, regional and local businesses.
As of July 31, 2006, the date the transactions with Adelphia and Comcast closed, the penetration rates for basic
video, digital video and high-speed data services were generally lower in the systems acquired from Adelphia and
Comcast (the “Acquired Systems”) than in TWC’s legacy systems. Furthermore, certain advanced services were not
available in some of the Acquired Systems, and IP-based telephony service was not available in any of the Acquired
Systems. To increase the penetration of these services in the Acquired Systems, TWC is in the midst of a significant
integration effort that includes upgrading the capacity and technical performance of these systems to levels that will
allow the delivery of these advanced services and features. As of December 31, 2006, Digital Phone was available in
some of the Acquired Systems on a limited basis.
Basis of Presentation
Changes in Basis of Presentation
On February 13, 2007, the Company filed with the Securities and Exchange Commission (“SEC”) a Current
Report on Form 8-K that contained recast consolidated financial information as of December 31, 2005 and 2004 and
for each year in the three-year period ended December 31, 2005. The financial information was recast so that the
basis of presentation would be consistent with that of 2006. Specifically, the financial information was recast to
reflect (i) the retrospective application of Financial Accounting Standards Board (“FASB”) Statement No. 123
(revised 2004), Share-Based Payment (“FAS 123R”), which was adopted by the Company in 2006, (ii) the
retrospective presentation of certain cable systems transferred in 2006 as discontinued operations and (iii) the effect
of a stock dividend that occurred immediately prior to the consummation of the acquisition of assets of Adelphia.
The financial information presented herein reflects the impact of that recast as well as the restatement discussed
below under the heading “Restatement of Prior Financial Information.”
Stock-based compensation. Historically, TWC employees have participated in various Time Warner equity
plans. TWC has established the Time Warner Cable Inc. 2006 Stock Incentive Plan (the “2006 Plan”). The
Company expects that its employees will participate in the 2006 Plan starting in 2007 and thereafter will not
continue to participate in Time Warner’s equity plan. TWC employees who have outstanding equity awards under
the Time Warner equity plans will retain any rights under those Time Warner equity awards pursuant to their terms
regardless of their participation in the 2006 Plan. The Company has adopted the provisions of FAS 123R as of
January 1, 2006. The provisions of FAS 123R require a company to measure the cost of employee services received
in exchange for an award of equity instruments based on the grant-date fair value of the award. That cost is
recognized in the statement of operations over the period during which an employee is required to provide service in
exchange for the award. FAS 123R also amends FASB Statement No. 95, Statement of Cash Flows, to require that
excess tax benefits, as defined, realized from the exercise of stock options be reported as a financing cash inflow
rather than as a reduction of taxes paid in cash flow from operations.
Prior to the adoption of FAS 123R, the Company had followed the provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation (“FAS 123”), which allowed the Company to follow the intrinsic value
method set forth in Accounting Principles Board (“APB”) Opinion No. 25, Accounting for Stock Issued to
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)