Time Warner Cable 2006 Annual Report Download - page 70

As a result of the pending TKCCP dissolution, TWC presents its managed subscriber numbers including only
the managed subscribers in the Kansas City Pool. Accordingly, the subscribers from the Houston Pool are not
included in the managed subscriber numbers for any period presented.
TWE Notes Indenture
On October 18, 2006, TWC, together with TWE, TW NY Holding, certain other subsidiaries of Time Warner
and The Bank of New York, as Trustee, entered into the Tenth Supplemental Indenture to the indenture (the “TWE
Indenture”) governing $3.2 billion of notes and debentures issued by TWE (the “TWE Notes”). Pursuant to the
Tenth Supplemental Indenture to the TWE Indenture, TW NY Holding fully, unconditionally and irrevocably
guaranteed the payment of principal and interest on the TWE Notes. Also on October 18, 2006, TW NY contributed
all of its general partnership interests in TWE to TWE GP Holdings LLC, its wholly owned subsidiary. In addition,
on November 2, 2006, a consent solicitation to amend the TWE Indenture was successfully completed. See
“Financial Condition and Liquidity — TWE Notes” for further details.
Restatement of Prior Financial Information
As previously disclosed, the Securities and Exchange Commission (the “SEC”) had been conducting an
investigation into certain accounting and disclosure practices of TWC’s parent company, Time Warner. On
March 21, 2005, Time Warner announced that the SEC had approved Time Warner’s proposed settlement, which
resolved the SEC’s investigation of Time Warner. Under the terms of the settlement with the SEC, Time Warner
agreed, without admitting or denying the SEC’s allegations, to be enjoined from future violations of certain
provisions of the securities laws and to comply with the cease-and-desist order issued by the SEC to AOL LLC
(formerly America Online, Inc. (“AOL”)), a subsidiary of Time Warner, in May 2000. Time Warner also agreed to
appoint an independent examiner, who was to either be or hire a certified public accountant. The independent
examiner was to review whether Time Warner’s historical accounting for certain transactions (as well as any
subsequent amendments) with 17 counterparties identified by the SEC staff, principally involving online adver-
tising revenues and including three cable programming affiliation agreements with related online advertising
elements, was appropriate, and provide a report to Time Warner’s Audit and Finance Committee of its conclusions.
The transactions that were to be reviewed were entered into (or amended) between June 1, 2000 and December 31,
2001, including subsequent amendments thereto, and involved online advertising and related transactions for which
the majority of the revenue was recognized by Time Warner before January 1, 2002.
During the third quarter of 2006, the independent examiner completed his review, in which he concluded that
certain of the transactions under review with 15 counterparties, including the three cable programming affiliation
agreements with advertising elements, had been accounted for improperly because the historical accounting did not
reflect the substance of the arrangements. Under the terms of its SEC settlement, Time Warner was required to
restate any transactions that the independent examiner determined were accounted for improperly. Accordingly,
Time Warner restated its consolidated financial results for each of the years ended December 31, 2000 through
December 31, 2005 and for the six months ended June 30, 2006. The impact of the adjustments is reflected in
amendments filed by Time Warner with the SEC on September 13, 2006. In addition, TWC restated its consolidated
financial results for the years ended December 31, 2001 through December 31, 2005 and for the six months ended
June 30, 2006. The restated consolidated financial results are reflected in TWC’s Current Report on Form 8-K filed
with the SEC on February 13, 2007, as well as in the financial statements presented herein.
The three transactions impacting TWC are ones in which TWC entered into cable programming affiliation
agreements at the same time it committed to deliver (and did subsequently deliver) network and online advertising
services to those same counterparties. Total Advertising revenues recognized by TWC under these transactions
were approximately $274 million (approximately $134 million in 2001 and approximately $140 million in 2002).
Included in the $274 million was $56 million related to operations that have been subsequently classified as
65
TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION — (Continued)