Time Warner Cable 2007 Annual Report Download

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A n n u a l R e p o r t 2 0 0 7

Table of contents

  • Page 1
    A n n u a l R e p o r t 2 0 0 7

  • Page 2
    ... business in 2007. Digital cable, digital video recorders and Video On Demand continue to be very popular with our video President & Chief Executive Officer Glenn Britt is pictured with the three Emmy® Awards Time Warner Cable has earned for technological innovation: Video On Demand (2008), Start...

  • Page 3
    .... We continue to expand pricing options for digital phone customers. In 2007, we introduced our new International OnePrice Plan, which has been extremely attractive to international callers. We continue to have great success selling the triple-play bundle of services, as well as various double-play...

  • Page 4
    ... video and high-speed data services to businesses for several years, and in 2007, we launched commercial digital phone in most of our footprint. We plan to increase our focus on this very large opportunity over the next few years. Finally, we are working on something we call "advanced advertising...

  • Page 5
    ... the closing price of such shares on the New York Stock Exchange on June 29, 2007) was approximately $6.1 billion. DOCUMENTS INCORPORATED BY REFERENCE Description of document Part of the Form 10-K Portions of the definitive Proxy Statement to be used in connection with the registrant's 2008 Annual...

  • Page 6
    ...the "Company") is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas-New York state (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. As of December 31, 2007...

  • Page 7
    ...events or otherwise. Available Information and Website Although TWC and its predecessors have been in the cable business for over 30 years in various legal forms, Time Warner Cable Inc. was incorporated as a Delaware corporation on March 21, 2003. TWC's annual reports on Form 10-K, quarterly reports...

  • Page 8
    ...Basic video subscriber numbers reflect billable subscribers who receive at least TWC's basic video service. RGUs reflect the total of all TWC basic video, digital video, high-speed data, Digital Phone and circuit-switched telephone service customers. Time Warner Inc. Class A and Class B Common Stock...

  • Page 9
    ...digital video subscribers using a TWC-provided set-top box. Available On-Demand services include a wide selection of featured movies and special events, for which separate per-use fees are generally charged, and free access to selected movies, programs and program excerpts from cable networks, music...

  • Page 10
    ... TV features such as Look BackTM, which utilizes the Start Over technology to allow viewing of previously aired programs, and Quick ClipsTM, which allows customers to view short-form content tied to the cable network or broadcast station then being watched. TWC is also working to make available...

  • Page 11
    ...it uses to provide video and high-speed data services. Under a multi-year agreement between TWC and Sprint Nextel Corporation ("Sprint"), Sprint assists TWC in providing Digital Phone service by routing voice traffic to and from destinations outside of TWC's network via the public switched telephone...

  • Page 12
    ... Phone enables TWC to offer its commercial customers a bundle of video, high-speed data and voice services and to compete against bundled services from its competitors. Video Services TWC offers business customers a full range of video programming tiers marketed under the "Time Warner Cable Business...

  • Page 13
    ... to the Internet, and provide secure access for remote users, such as traveling employees and employees working from home or a remote location. TWC also offers a variety of Ethernet services that are designed to provide high-speed, high-capacity connections between customers' local area networks, or...

  • Page 14
    ... made available for new services, including HDTV channels. As of December 31, 2007, over 1.4 million (or 18%) of digital video subscribers received some portion of their video service via SDV technology. TWC expects to continue to deploy SDV technology during 2008. Set-top Boxes Each of TWC's cable...

  • Page 15
    ... number of its divisions, uses its Open Cable Digital Navigator ("ODN") and Mystro Digital Navigator ("MDN") program guides. It also purchases program guides from Scientific Atlanta and Aptiv Digital, Inc., which is owned by Gemstar-TV Guide International, Inc. High-speed data and voice connectivity...

  • Page 16
    ... that utilizes DBS video but in an integrated package with AT&T's DSL product, which enables an Internet-based return path that allows the customer to order a video-on-demand-like product and other services that TWC provides using its two-way network. Local telephone companies. TWC's high-speed data...

  • Page 17
    ...companies that offer other forms of online services, including low cost dial-up services over ordinary telephone lines, and developing technologies, such as Internet service via power lines, satellite and various wireless services (e.g., Wi-Fi), including those of local municipalities. Digital Phone...

  • Page 18
    ... subscriber rates; carriage of broadcast television stations, as well as the way TWC sells its program packages to subscribers; the use of cable systems by franchising authorities and other third parties; cable system ownership; offering of voice and high-speed data services; and its use of utility...

  • Page 19
    ...generally includes local broadcast channels and public access or educational and government channels required by the franchise. This kind of regulation also applies to the installation, sale and lease of equipment used by subscribers to receive basic service, such as set-top boxes and remote control...

  • Page 20
    ...and that 70 percent of those households subscribe to such systems. High-speed Internet access. From time to time, industry groups, telephone companies and Internet service providers ("ISPs") have sought local, state and federal regulations that would require cable operators to sell capacity on their...

  • Page 21
    ...2007, the FCC issued a Notice of Proposed Rulemaking that proposes to establish a single pole attachment rate for all companies providing broadband internet access service. Set-top box regulation. Certain regulatory requirements are also applicable to set-top boxes. Currently, many cable subscribers...

  • Page 22
    ... brought by the Mid-Atlantic Sports Network because the claim was brought prior to the suspension. Any arbitrator's award is subject to de novo review at the FCC as well as judicial review. State and Local Regulation Cable operators operate their systems under non-exclusive franchises. Franchises...

  • Page 23
    ...-switched telephone regulations. It is also unclear whether utility pole owners may charge cable operators offering Non-traditional Voice Services higher rates for pole rental than for traditional cable service and cable modem service. Regulation of Commercial Networking and Transport Services...

  • Page 24
    ... of a majority of the holders of TWC Class A common stock, other than any member of the Time Warner Group. Additionally, under the TW NY Purchase Agreement, TWC agreed that it will not enter into any short-form merger prior to August 1, 2008 (two years after the Adelphia Closing). Parent Agreement...

  • Page 25
    ... which owned cable systems in the Los Angeles, California area, and Parnassos Communications, L.P. (the "Parnassos joint venture"), which owned cable systems in Ohio and Western New York. The purchase price under the Comcast Purchase Agreement was approximately $3.6 billion in cash. Agreements with...

  • Page 26
    ... systems the Company acquired in the Exchange were cable systems (i) that were owned by the Century-TCI joint venture in the Los Angeles, California area and the Parnassos joint venture in Ohio and Western New York and (ii) then owned by Comcast located in the Dallas, Texas, Los Angeles, California...

  • Page 27
    ... subsidiary of TWC, in exchange for a 12.43% non-voting common stock economic interest in TW NY Holding and upon the closing of the TWE Redemption, Comcast Trust I's ownership interest in TWE was redeemed. As a result, Time Warner has no direct interest in TWE and Comcast no longer has any interest...

  • Page 28
    ... has the right to sell the specified assets to an unrelated third party within 180 days on substantially the same terms as were available to TWE. Wireless Spectrum Joint Venture TWC is a participant in a joint venture with several other cable companies that holds 137 advanced wireless spectrum ("AWS...

  • Page 29
    ... affiliates; or (2) adopting a stockholder rights plan, becoming subject to section 203 of the Delaware General Corporation Law, adopting a "fair price" provision in its Certificate of Incorporation or taking any similar action. Furthermore, so long as Time Warner has the power to elect a majority...

  • Page 30
    ... telephone and DBS companies aggressively market their individual products as well as their bundles or synthetic bundles (i.e., video services provided principally by the DBS operator, and DSL service, traditional phone service and, in some cases, wireless service provided by the telephone company...

  • Page 31
    ..., movies, live events, radio broadcasts, home video products, console games, print media and the Internet. Technological advancements, such as VOD, new video formats, and Internet streaming and downloading, many of which have been beneficial to TWC's business, have nonetheless increased the number...

  • Page 32
    ... sold video and high-speed data services to businesses for some time and, in 2007, introduced an IP-based telephony service, Business Class Phone, geared to small- and medium-sized businesses. In order to provide its commercial customers with reliable services, TWC may need to increase expenditures...

  • Page 33
    ... in opportunities to gain new basic video subscribers or in demand for TWC's advanced services or an increase in TWC's bad debt may have an adverse effect on TWC's growth, business and financial results or financial condition. TWC relies on network and information systems and other technology, and...

  • Page 34
    ... maintained in TWC's information technology systems and networks, including customer, personnel and vendor data. TWC could be exposed to significant costs if such risks were to materialize, and such events could damage the reputation and credibility of TWC and its business and have a negative...

  • Page 35
    ...TWC's operations, business, financial results and financial condition. In addition, TWC has an agreement with Sprint under which it assists TWC in providing Digital Phone service to customers by routing voice traffic to and from destinations outside of TWC's network via the public switched telephone...

  • Page 36
    ... costs. Under federal law, TWC has the right to attach cables carrying video services to telephone and similar poles of investor-owned utilities at regulated rates. However, because these cables carry services other than video services, such as high-speed data services or new forms of voice services...

  • Page 37
    ... would likely choose to carry the majority of primary feeds of full power stations voluntarily, so-called "must carry" rules require TWC to carry video programming that it might not otherwise carry, including some local broadcast television signals on some of its cable systems. If the FCC seeks to...

  • Page 38
    ... or regulation could limit TWC's ability to operate its high-speed data business profitably, to manage its broadband facilities efficiently and to make upgrades to those facilities sufficient to respond to growing bandwidth usage by TWC's high-speed data customers. Several disparate groups have...

  • Page 39
    ... establish new rules. Congress, for example, considers new legislative requirements for cable operators virtually every year, and there is always a risk that such proposals will ultimately be enacted. See "Business-Regulatory Matters." Risks Related to TWC's Relationship with Time Warner Time Warner...

  • Page 40
    ... who are also Time Warner's employees or executive officers, from this obligation and any liability that would result from breach of this obligation. Time Warner may deliver video, high-speed data, voice and wireless services over DSL, satellite or other means using the "Time Warner" brand name or...

  • Page 41
    ... $232 million of cash and cash equivalents. In addition, in December 2007, Time Warner obtained commitments for a $2.0 billion three-year unsecured term loan, which closed on January 8, 2008. TWC is exempt from certain corporate governance requirements since TWC is a "controlled company" within the...

  • Page 42
    ... used in its high-speed data services business in Herndon, VA; Raleigh, NC; Tampa, FL; Syracuse, NY; Austin, TX; Kansas City, MO; Orange County, CA; New York, NY; Coudersport, PA; and Columbus, OH. As of December 31, 2007, TWC also leased and owned locations for its corporate offices in New York, NY...

  • Page 43
    ... v. Time Warner Entertainment Company, L.P. and Time Warner Cable filed a purported nationwide class action in U.S. District Court for the Eastern District of New York claiming that TWE sold its subscribers' personally identifiable information and failed to inform subscribers of their privacy rights...

  • Page 44
    ... claims, which could increase the Company's damages and its costs of defending against such claims. Even if the claims are without merit, defending against the claims can be time consuming and costly. As part of the TWE Restructuring, Time Warner agreed to indemnify the cable businesses of TWE from...

  • Page 45
    ... Time Warner and its predecessor Time Inc. Ms. East ...Ellen East has served as TWC's Executive Vice President, Chief Communications Officer since October 2007. Prior to that, she served as Vice President of Communications and Public Affairs at Cox Communications Inc., a provider of video, internet...

  • Page 46
    ......Michael L. LaJoie has served as TWC's Executive Vice President and Chief Technology Officer since January 2004. Prior to that, he served as Executive Vice President of Advanced Technology from March 2003 and in the same capacity for the Time Warner Cable division of TWE from August 2002 until the...

  • Page 47
    ... of the design and operation of TWC's "disclosure controls and procedures" (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that TWC...

  • Page 48
    ... Company equity compensation plans called for by Item 201(d) of Regulation S-K is set forth below. The Company has adopted a Code of Ethics for its Senior Executive and Senior Financial Officers. A copy of the Code is publicly available on the Company's website at www.timewarnercable.com/investors...

  • Page 49
    ... covers the Time Warner Cable Inc. 2006 Stock Incentive Plan (the "2006 Stock Plan"), which was approved by the Company's stockholders in May 2007 and is currently the Company's only compensation plan pursuant to which the Company's equity is awarded. Column (a) includes 2,103,489 shares of Class...

  • Page 50
    .... TIME WARNER CABLE INC. By: /s/ Glenn A. Britt Name: Glenn A. Britt Title: President and Chief Executive Officer Dated: February 22, 2008 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons on...

  • Page 51
    ... Statement of Cash Flows ...Consolidated Statement of Shareholders' Equity ...Notes to Consolidated Financial Statements ...Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Selected Financial Information ...Quarterly...

  • Page 52
    ... is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas-New York state (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. As of December 31, 2007, TWC served...

  • Page 53
    ...to continue to slow over time as high-speed data services become increasingly well-penetrated. TWC also offers commercial high-speed data services and had 280,000 commercial high-speed data subscribers as of December 31, 2007. Approximately 2.9 million subscribers received Digital Phone service, TWC...

  • Page 54
    ... in its systems in Dallas, Texas and Los Angeles, California" in Part I of this report for additional information. Recent Developments Sale of Certain North Carolina Cable Systems The closing of the transactions with Adelphia (discussed below), which included the Company's acquisition from Adelphia...

  • Page 55
    ... 1, 2007, TWC's Class A common stock began trading on the New York Stock Exchange under the symbol "TWC" (Note 4). FINANCIAL STATEMENT PRESENTATION Revenues The Company's revenues consist of Subscription and Advertising revenues. Subscription revenues consist of revenues from video, high-speed data...

  • Page 56
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) High-speed data revenues include monthly subscriber fees from both residential and commercial subscribers, along with related equipment rental charges, home networking fees and ...

  • Page 57
    ... compensates for this limitation through other financial measures such as a review of net income and earnings per share. Free Cash Flow is a non-GAAP financial measure. The Company defines Free Cash Flow as cash provided by operating activities (as defined under GAAP) plus excess tax benefits...

  • Page 58
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) 2007 vs. 2006 As previously noted under "Recent Developments," on July 31, 2006, the Company completed the Transactions and began consolidating the results of the Acquired Systems...

  • Page 59
    ... high-speed data services offered by TWC. Digital Phone subscriber numbers reflect billable subscribers who receive an IP-based telephony service. Digital Phone subscribers exclude subscribers acquired from Comcast in the Exchange who receive traditional, circuit-switched telephone service (which...

  • Page 60
    ...of the Acquired Systems and the consolidation of the Kansas City Pool, as well as contractual rate increases and the expansion of service offerings. Average per-subscriber programming costs increased 8% to $22.04 per month in 2007 from $20.33 per month in 2006. Employee costs increased primarily due...

  • Page 61
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Other direct operating costs increased primarily due to the impact of the Acquired Systems and the consolidation of the Kansas City Pool, as well as certain other increases in ...

  • Page 62
    ... as discussed above. The Company anticipates that OIBDA and Operating Income will increase during 2008 as compared to 2007, although the rate of growth is expected to be lower than that experienced in 2007 as each year will include the results of the Acquired Systems and the Kansas City Pool for the...

  • Page 63
    ... adoption of Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("Statement") No. 123 (revised 2004), Share-Based Payment ("FAS 123R") to recognize the effect of estimating the number of Time Warner equity-based awards granted to TWC employees prior to January...

  • Page 64
    ... high-speed data services offered by TWC. Digital Phone subscriber numbers reflect billable subscribers who receive an IP-based telephony service. Digital Phone subscribers exclude subscribers acquired from Comcast in the Exchange who receive traditional, circuit-switched telephone service (which...

  • Page 65
    ...WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Costs of revenues. The major components of costs of revenues were as follows (in millions): Years Ended December 31, 2006 2005 % Change Video programming...Employee ...High-speed data...

  • Page 66
    ... several local news channels, partially offset by a $1 million reduction in restructuring charges, reflecting changes to previously established restructuring accruals. The Company's restructuring activities were part of the Company's broader plans to simplify its organizational structure and enhance...

  • Page 67
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) OIBDA. OIBDA increased due to the Acquired Systems and revenue growth (particularly growth in high margin high-speed data revenues), partially offset by higher costs of revenues ...

  • Page 68
    ... of cash include cash provided by operating activities, cash and equivalents on hand, available borrowing capacity under its committed credit facilities and commercial paper program and access to the capital markets. TWC's unused committed available funds were $3.881 billion as of December 31, 2007...

  • Page 69
    ... the Company's net income tax payments in 2008. The Company expects to make discretionary cash contributions of approximately $150 million to its defined benefit pension plans during 2008, subject to market conditions and other considerations. Cash provided by operating activities increased from...

  • Page 70
    ... Acquisition and the Exchange in 2007 primarily represents additional transaction-related costs, including working capital adjustments. Cash used for the wireless joint venture in 2006 represents the Company's initial investment in a wireless spectrum joint venture with several other cable companies...

  • Page 71
    ...in the purchase and installation of equipment that resides at a customer's home or business for the purpose of receiving/sending video, high-speed data and/or Digital Phone signals. Such equipment typically includes digital set-top boxes, remote controls, high-speed data modems, telephone modems and...

  • Page 72
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Financing Activities Details of cash provided (used) by financing activities are as follows (in millions): Years Ended December 31, 2007 2006 2005 (a) Borrowings (repayments), ...

  • Page 73
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Free Cash Flow Reconciliation of Cash provided by operating activities to Free Cash Flow. The following table reconciles Cash provided by operating activities to Free Cash Flow (...

  • Page 74
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Outstanding Debt and Mandatorily Redeemable Preferred Equity and Available Financial Capacity Debt and mandatorily redeemable preferred equity as of December 31, 2007 and December...

  • Page 75
    ...business. 2008 20092010 20112013 and 2012 thereafter (in millions) Total Programming purchases(a) ...Outstanding debt obligations and TW NY Preferred Membership Units(b) ...Interest and dividends(c) ...Facility leases(d) ...Data processing services...High-speed data connectivity(e) ...Digital Phone...

  • Page 76
    ...a party to these commitments. In the event that TWE is required to make a payment related to any contingent liabilities of the TWE Non-cable Businesses, TWE will recognize an expense from discontinued operations and will receive a capital contribution from Time Warner and/or its subsidiary, WCI, for...

  • Page 77
    ... cash distributions to Time Warner when employees of the Company exercise previously issued Time Warner stock options. For more information, see "Market Risk Management-Equity Risk" below. MARKET RISK MANAGEMENT Market risk is the potential gain/loss arising from changes in market rates and prices...

  • Page 78
    ... connection with their past employment with subsidiaries and affiliates of Time Warner. TWC has agreed that, upon the exercise by any of its officers or employees of any options to purchase Time Warner common stock, TWC will reimburse Time Warner in an amount equal to the excess of the closing price...

  • Page 79
    ... future cash flows associated with that asset. If the intent is to hold the asset for sale and certain other criteria are met (e.g., the asset can be disposed of currently, appropriate levels of authority have approved the sale, and there is an active program to locate a buyer), the impairment test...

  • Page 80
    ... (e.g., the Company sells advertising services to a customer and at the same time purchases programming services); Sales of multiple products and/or services (e.g., the Company sells video, high-speed data and voice services to a customer); and/or Purchases of multiple products and/or services, or...

  • Page 81
    ... of its cable systems. Costs associated with the construction of the cable transmission and distribution facilities and new cable service installations are capitalized. With respect to certain customer premise equipment, which includes set-top boxes and high-speed data and voice cable modems, TWC...

  • Page 82
    ...: customer premise equipment, scalable infrastructure, line extensions, plant upgrades and rebuilds and support capital. For set-top boxes and modems, useful life is generally 3 to 5 years and for distribution plant, useful life is up to 16 years. In connection with the Transactions, TW NY acquired...

  • Page 83
    ..., the Company operates in a highly competitive, consumer and technology-driven and rapidly changing business. The Company's business is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological...

  • Page 84
    TIME WARNER CABLE INC. CONSOLIDATED BALANCE SHEET December 31, 2007 2006 (in millions) ASSETS Current assets Cash and equivalents ...Receivables, less allowances of $87 million in 2007 and $73 million in 2006 . Receivables from affiliated parties ...Prepaid expenses and other current assets ......

  • Page 85
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF OPERATIONS Years Ended December 31, 2007 2006 2005 (in millions, except per share data) Revenues: Subscription: Video ...High-speed data ...Voice...Total Subscription ...Advertising ...Total revenues(a) ...Costs and expenses: Costs of revenues(a)(b) ...

  • Page 86
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF CASH FLOWS Years Ended December 31, 2007 2006 (in millions) 2005 OPERATING ACTIVITIES Net income(a) ...Adjustments for noncash and nonoperating items: Cumulative effect of accounting change, net of tax ...Depreciation and amortization ...Pretax gain ...

  • Page 87
    ... to Time Warner Inc. for vested employee stock options, as well as other amounts pursuant to accounting for equity-based compensation plans. Relates to the impact of adopting the provisions of Emerging Issues Task Force Issue No. 06-2, Accounting for Sabbatical Leave and Other Similar Benefits, of...

  • Page 88
    ...the "Company") is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas-New York state (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. As of December 31, 2007...

  • Page 89
    ..., legal, information technology, treasury, financial, public policy and corporate and investor relations services, and approximate Time Warner's estimated cost for services rendered. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation. Use of...

  • Page 90
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Recent Accounting Standards Not Yet Adopted Consideration Given by a Service Provider to Manufacturers or Resellers of Equipment In September 2006, the EITF reached a consensus on EITF Issue No. 06-1, Accounting for ...

  • Page 91
    ... of its cable systems. Costs associated with the construction of the cable transmission and distribution facilities and new cable service installations are capitalized. With respect to certain customer premise equipment, which includes settop boxes and high-speed data and voice cable modems, TWC...

  • Page 92
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2007 and 2006, the Company's property, plant and equipment and related accumulated depreciation included the following (in millions): December 31, 2007 2006 Estimated Useful Lives Land, buildings and ...

  • Page 93
    ... in the future cash flows generated as a result of the respective intangible assets. Goodwill and indefinite-lived intangible assets, primarily the Company's cable franchise agreements, are tested annually for impairment during the fourth quarter or earlier upon the occurrence of certain events or...

  • Page 94
    ...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. Historically, TWC employees were granted equity awards under Time Warner's equity plans. Since April 2007, grants...

  • Page 95
    ... FASB Statement No. 51, Financial Reporting by Television Cable Companies, as a component of Subscription revenues as the connections are completed, as installation revenues recognized are less than the related direct selling costs. Advertising revenues, including those from advertising purchased by...

  • Page 96
    ... in such cost or (ii) the Company is providing an identifiable benefit in exchange for the consideration in which case it recognizes revenue for this element. With respect to programming vendor advertising arrangements being negotiated simultaneously with the same cable network, TWC assesses...

  • Page 97
    ...revenue on a straight-line basis over the term of the agreement. For example, the Company sells video, high-speed data and voice services to subscribers in a bundled package at a rate lower than if the subscriber purchases each product on an individual basis. Subscription revenues received from such...

  • Page 98
    ... and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. The financial effect of changes in tax laws or rates is accounted for in the period of enactment. The Company made cash tax payments to Time Warner of $263 million in 2007, $444 million...

  • Page 99
    ... before the closing of the Adelphia Acquisition, Comcast's interests in TWC and TWE were redeemed. Specifically, Comcast's 17.9% interest in TWC was redeemed in exchange for 100% of the capital stock of a subsidiary of TWC holding both cable systems serving 589,000 basic video subscribers, with an...

  • Page 100
    ... future cash flows and utilized a discount rate consistent with the inherent risk in the business. The Exchange was accounted for as a purchase of cable systems from Comcast and a sale of TW NY's cable systems to Comcast. The systems exchanged by TW NY included Urban Cable Works of Philadelphia...

  • Page 101
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The purchase price allocation for the Adelphia Acquisition and the Exchange is as follows (in millions): Depreciation/ Amortization Periods(a) Intangible assets not subject to amortization (cable franchise rights) ......

  • Page 102
    ... the consolidated statement of operations for the year ended December 31, 2007. The acquisition of Comcast's 50% equity interest in the Kansas City Pool on January 1, 2007 was treated as a step-acquisition and accounted for as a purchase business combination. The consideration paid to acquire the 50...

  • Page 103
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The allocation of the purchase price for the acquisition of Comcast's 50% equity interest in the Kansas City Pool primarily used a DCF approach with respect to identified intangible assets and a combination of the cost and...

  • Page 104
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) FCC Order Approving the Transactions In its order approving the Adelphia Acquisition, the Federal Communications Commission (the "FCC") imposed conditions on TWC related to regional sports networks ("RSNs"), as defined in ...

  • Page 105
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Information relating to the restructuring costs is as follows (in millions): Employee Terminations Other Exit Costs Total Remaining liability as of December 31, 2005 ...$ Accruals ...Cash paid ...Remaining liability as of...

  • Page 106
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) is expected to be $259 million in 2008, $257 million in 2009, $163 million in 2010, $13 million in 2011 and $8 million in 2012. These amounts may vary as acquisitions and dispositions occur in the future and as purchase ...

  • Page 107
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 8. DEBT AND MANDATORILY REDEEMABLE PREFERRED EQUITY The Company's debt and mandatorily redeemable preferred equity, as of December 31, 2007 and 2006, includes the following components: Interest Rate at December 31, 2007 ...

  • Page 108
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) under the Securities Act of 1933, as amended. The Initial Debt Securities are guaranteed by TWE and TW NY Holding (the "Guarantors"). On November 5, 2007, pursuant to a registration rights agreement entered into in ...

  • Page 109
    ... relating to a material adverse change in the financial condition or results of operations of Time Warner or TWC. Borrowings under the Cable Revolving Facility may be used for general corporate purposes, and unused credit is available to support borrowings under TWC's commercial paper program...

  • Page 110
    ... Units In connection with the financing of the Adelphia Acquisition, TW NY issued $300 million of its Series A Preferred Membership Units (the "TW NY Preferred Membership Units") to a limited number of third parties. The TW NY Preferred Membership Units pay cash dividends at an annual rate equal to...

  • Page 111
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) depreciation, amortization and rental expense (for any lease that is not accounted for as a capital lease) for the twelve months ending on the last day of TWC's most recent fiscal quarter, including certain adjustments to ...

  • Page 112
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The differences between income taxes expected at the U.S. federal statutory income tax rate of 35% and income taxes provided are as set forth below (in millions): Years Ended December 31, 2007 2006 2005 Taxes on income at...

  • Page 113
    ... under its equity plans to employees of TWC since TWC Class A common stock began to trade publicly in March 2007. In addition, employees of Time Warner who become employed by TWC retain their Time Warner Equity Awards pursuant to their terms and TWC records equity-based compensation expense from the...

  • Page 114
    ... market price of Time Warner common stock and the number of Time Warner stock options held by TWC employees. This liability was $36 million and $137 million as of December 31, 2007 and 2006, respectively, and is included in long-term payables to affiliated parties in the consolidated balance sheet...

  • Page 115
    ... WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) As of December 31, 2007, the intrinsic value of unvested Time Warner restricted stock and RSU awards held by TWC employees was $9 million. Total unrecognized compensation cost related to unvested Time Warner restricted stock...

  • Page 116
    ... 31, 2007 2006 2005 Time Warner Equity Plans: Compensation cost recognized: Stock options ...$ Restricted stock and restricted stock units ...Total impact on Operating Income ...$ Tax benefit recognized ...$ TWC Equity Plans: Compensation cost recognized: Stock options ...$ Restricted stock units...

  • Page 117
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 11. EMPLOYEE BENEFIT PLANS Defined Benefit Plans The Company participates in various funded and unfunded noncontributory defined benefit pension plans administered by Time Warner. Pension benefits are determined based on ...

  • Page 118
    ...% Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2007, 2006 and 2005 are as follows: Years Ended December 31, 2007 2006 2005 (a) Discount rate ...Expected long-term return on plan assets ...Rate of compensation increase ...(a) 6.00% 8.00...

  • Page 119
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) In developing the expected long-term rate of return on assets, the Company considered the pension portfolio's composition, past average rate of earnings and discussions with portfolio managers. The expected long-term rate ...

  • Page 120
    ...: Advertising ...AOL broadband subscriptions ...Road Runner revenues from TWC's unconsolidated cable television systems joint ventures(a) ...Other ...Costs of revenues: Programming services provided by subsidiaries of Time Warner and affiliates Programming services provided by affiliates of Comcast...

  • Page 121
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Warner's best estimate of the fair value of the other content acquired by the Time Warner subsidiary at the time the agreements were executed. Under this arrangement, the Time Warner subsidiary makes periodic payments to ...

  • Page 122
    ... operating activities generated in the ordinary course of business. 2008 20092010 20112012 (in millions) 2013 and thereafter Total Programming purchases(a) ...Facility leases(b) ...Data processing services ...High-speed data connectivity(c) ...Digital Phone connectivity(d) ...Set-top box and modem...

  • Page 123
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) programmer defendants to sell and/or license programming on a "bundled" basis to the distributor defendants, who in turn purportedly offer that programming to subscribers in packaged tier, rather than on a per channel (or ...

  • Page 124
    ... the Southern District of New York alleging that TWC infringes several patents held by AMT. AMT has publicly taken the position that delivery of broadcast video (except live programming such as sporting events), pay-per-view, VOD and ad insertion services over cable systems infringe its patents. AMT...

  • Page 125
    ... include video programming costs. The direct costs associated with the high-speed data and voice services include network connectivity and certain other costs. Other Current Liabilities Other current liabilities consists of (in millions): December 31, 2007 2006 Accrued compensation and benefits...

  • Page 126
    TIME WARNER CABLE INC. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). The Company's ...

  • Page 127
    ... PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Time Warner Cable Inc. We have audited the accompanying consolidated balance sheet of Time Warner Cable Inc. ("the Company") as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash flows...

  • Page 128
    ... accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Time Warner Cable Inc. as of December 31, 2007 and 2006, and the related consolidated statements of operations, cash flows and shareholders' equity for each of the three...

  • Page 129
    ...and described in the consolidated financial statements or elsewhere herein. Years Ended December 31, 2007 Selected Operating Statement Information:(a) Revenues: Video ...High-speed data ...Voice ...Advertising ...Total revenues...Total costs and expenses(b) ...Operating Income(b) ...Interest expense...

  • Page 130
    TIME WARNER CABLE INC. QUARTERLY FINANCIAL INFORMATION (Unaudited) Quarters Ended March 31, June 30, September, 30 December 31, (in millions, except per share data) 2007(a) Revenues: Subscription ...Advertising ...Total revenues ...Operating Income ...Net income ...Basic and diluted net income per ...

  • Page 131
    ...") are subsidiaries of Time Warner Cable Inc. (the "Parent Company"). The Guarantor Subsidiaries have fully and unconditionally, jointly and severally, directly or indirectly, guaranteed the debt issued by the Parent Company in its 2007 registered exchange offer. The Parent Company owns 100% of...

  • Page 132
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet December 31, 2007 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) Eliminations TWC Consolidated ASSETS Current assets Cash and ...

  • Page 133
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet December 31, 2006 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) Eliminations TWC Consolidated ASSETS Current assets Cash and ...

  • Page 134
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations Year Ended December 31, 2007 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations Revenues ......

  • Page 135
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations Year Ended December 31, 2006 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations Revenues ...$ ...

  • Page 136
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations Year Ended December 31, 2005 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations Revenues ......

  • Page 137
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows Year Ended December 31, 2007 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations OPERATING ...

  • Page 138
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows Year Ended December 31, 2006 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations OPERATING ...

  • Page 139
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows Year Ended December 31, 2005 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations OPERATING ...

  • Page 140
    TIME WARNER CABLE INC. SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Period Additions Charged to Costs and Expenses(a) Balance at End of Period Deductions (in millions) Year Ended December 31, 2007: Allowance for doubtful accounts ...Year Ended December 31, 2006: Allowance...

  • Page 141
    ... Holdings, TWC and TW NY (related to the Exchange) (incorporated herein by reference to Exhibit 99.10 to the Time Warner October 13, 2006 Form 8-K/A). Letter Agreement re Texas and Kansas City Cable Partners, L.P., dated as of April 20, 2005, between Comcast and the Company (incorporated herein by...

  • Page 142
    ...of December 9, 2003, among Historic TW, TWE, Warner Communications Inc. ("WCI"), ATC, the Company and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.10 to Time Warner's Annual Report on Form 10-K for the year ended December 31, 2003 and filed with the SEC on March 15...

  • Page 143
    ..., among Historic TW, TWE, Time Warner NY Cable Inc., WCI, ATC, the Company and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Time Warner Quarterly Report on Form 10-Q for the quarter ended September 30, 2004 (File No. 1-15062)). Tenth Supplemental Indenture...

  • Page 144
    ..., the Company, Comcast Holdings Corporation, Comcast, Time Warner, TWI Cable, WCI, ATC, Comcast Trust I, Comcast Trust II, and TWE Holdings III Trust ("Comcast Trust III") (incorporated herein by reference to Exhibit 2.2 to Time Warner's Current Report on Form 8-K dated March 28, 2003 and filed with...

  • Page 145
    ... herein by reference to Exhibit 10.16 to Time Warner's Quarterly Report on Form 10-Q for the quarter ended September 30, 2002 and filed with the SEC on November 14, 2002 (File No. 1-15062) (the "Time Warner September 30, 2002 Form 10-Q")). Amendment to the Intellectual Property Agreement, dated...

  • Page 146
    ... Louisiana/Mississippi/Texas, LLC, TWC, TWE, Comcast Corporation, Time Warner and TW NY, relating to certain TWE administrative matters in connection with the redemption of Comcast's interest in TWE (incorporated herein by reference to Exhibit 10.3 to the Company's Quarterly Report on Form 10-Q for...

  • Page 147
    ... Time Warner Inc. Don Logan Chairman of the Board Time Warner Cable Inc. Former Chairman, Media & Communications Group Time Warner Inc. N.J. Nicholas, Jr. Investor Former Co-Chief Executive Officer Time Warner Inc. Wayne H. Pace Former Executive Vice President & Chief Financial Officer Time Warner...

  • Page 148
    ..., North Tower, New York, NY 10019, Attn: Investor Relations, or by e-mail to [email protected]. The Annual Report on Form 10-K and Time Warner Cable's Quarterly Reports on Form 10-Q, as well as certain other documents filed with the SEC, are available on the company's Investor Relations website...

  • Page 149
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