Time Warner Cable 2007 Annual Report Download - page 112

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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):
2007 2006 2005
Years Ended December 31,
Taxes on income at U.S. federal statutory rate. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 652 $ 545 $ 456
State and local taxes, net of federal tax benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77 69 73
State tax law change, deferred tax impact
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — (205)
State ownership restructuring and methodology changes, deferred tax impact
(b)
. . . . . . . . — — (174)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 6 3
Total ........................................................... $ 740 $ 620 $ 153
(a)
Amount represents changes to the method of taxation in Ohio. The income tax was being phased out and replaced with a gross receipts tax.
(b)
Amount represents the restructuring of the Company’s partnership interests in Texas and certain other state methodology changes.
Significant components of TWC’s deferred income tax liabilities, net, are as follows (in millions):
2007 2006
December 31,
Cable franchise costs and customer relationships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (11,573) $ (10,806)
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,185) (1,837)
Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — (552)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13) (92)
Deferred income tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (13,771) (13,287)
Equity-based compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148 138
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 423 247
Deferred income tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 571 385
Deferred income tax liabilities, net
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (13,200) $ (12,902)
(a)
Deferred income tax liabilities, net, includes current deferred income tax assets of $91 million and $78 million as of December 31, 2007
and 2006, respectively.
Accounting for Uncertainty in Income Taxes
On January 1, 2007, the Company adopted the provisions of FIN 48, which clarifies the accounting for
uncertainty in income tax positions. This interpretation requires the Company to recognize in the consolidated
financial statements those tax positions determined more likely than not to be sustained upon examination, based on
their technical merits. Upon adoption, the Company recognized a $3 million reduction of previously recorded tax
reserves, which was accounted for as an increase to the retained earnings balance as of January 1, 2007. After
considering the impact of adopting FIN 48, the Company had a $17 million reserve for uncertain income tax
positions, which includes an accrual for interest and penalties of $1 million, as of January 1, 2007.
The Company has a $20 million reserve for uncertain income tax positions as of December 31, 2007, which
includes an accrual for interest and penalties of $2 million. The Company’s policy is to recognize interest and
penalties accrued on uncertain tax positions as part of the income tax provision. The income tax provision for the
year ended December 31, 2007 includes interest and penalties of $1 million.
107
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)