Time Warner Cable 2006 Annual Report Download - page 88

TWC’s capital expenditures from continuing operations included the following major categories (in millions):
2006 2005 2004
Year Ended December 31,
Customer premise equipment
(a)
.............................. $1,125 $ 805 $ 656
Scalable infrastructure
(b)
................................... 568 325 184
Line extensions
(c)
........................................ 280 235 218
Upgrades/rebuilds
(d)
...................................... 151 113 126
Support capital
(e)
......................................... 594 359 375
Total capital expenditures .................................. $2,718 $1,837 $1,559
(a)
Represents costs incurred in the purchase and installation of equipment that resides at a customer’s home for the purpose of receiving/
sending video, high-speed data and/or Digital Phone signals. Such equipment typically includes digital converters, remote controls,
high-speed data modems, telephone modems and the costs of installing such equipment for new customers. Customer premise
equipment also includes materials and labor incurred to install the “drop” cable that connects a customer’s dwelling to the closest point
of the main distribution network.
(b)
Represents costs incurred in the purchase and installation of equipment that controls signal reception, processing and transmission
throughout TWC’s distribution network, as well as controls and communicates with the equipment residing at a customer’s home. Also
included in scalable infrastructure is certain equipment necessary for content aggregation and distribution (VOD equipment) and
equipment necessary to provide certain video, high-speed data and Digital Phone product features (voicemail, e-mail, etc.).
(c)
Represents costs incurred to extend TWC’s distribution network into a geographic area previously not served. These costs typically
include network design, the purchase and installation of fiber optic and coaxial cable and certain electronic equipment.
(d)
Represents costs incurred to upgrade or replace certain existing components or an entire geographic area of TWC’s distribution
network. These costs typically include network design, the purchase and installation of fiber optic and coaxial cable and certain
electronic equipment.
(e)
Represents all other capital purchases required to run day-to-day operations. These costs typically include vehicles, land and buildings,
computer equipment, office equipment, furniture and fixtures, tools and test equipment and software.
TWC incurs expenditures associated with the construction of its cable systems. Costs associated with the
construction of the cable transmission and distribution facilities and new cable service installations are capitalized.
TWC generally capitalizes expenditures for tangible fixed assets having a useful life of greater than one year.
Capitalized costs include direct material, labor and overhead and interest. Sales and marketing costs, as well as the
costs of repairing or maintaining existing fixed assets, are expensed as incurred. With respect to certain customer
premise equipment, which includes converters and cable modems, TWC capitalizes installation charges only upon
the initial deployment of these assets. All costs incurred in subsequent disconnects and reconnects are expensed as
incurred. Depreciation on these assets is provided, generally using the straight-line method, over their estimated
useful lives. For converters and modems, the useful life is 3 to 4 years, and, for plant upgrades, the useful life is up to
16 years.
In connection with the Transactions, TW NY acquired significant amounts of property, plant and equipment,
which were recorded at their estimated fair values. The remaining useful lives assigned to such assets were
generally shorter than the useful lives assigned to comparable new assets, to reflect the age, condition and intended
use of the acquired property, plant and equipment.
As a result of the Transactions, the Company has made and anticipates continuing to make significant capital
expenditures over the next 12 to 24 months related to the continued integration of the Acquired Systems, including
improvements to plant and technical performance and upgrading system capacity, which will allow the Company to
offer its advanced services and features in the Acquired Systems. The Company estimates that these expenditures
will range from approximately $450 million to $550 million (including amounts incurred during 2006). TWC does
not believe that these expenditures will have a material negative impact on its liquidity or capital resources.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION — (Continued)