Time Warner Cable 2007 Annual Report Download - page 57

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revenues in the Company’s business. To compensate for this limitation, management evaluates the investments in
such tangible and intangible assets through other financial measures, such as capital expenditure budget variances,
investment spending levels and return on capital analyses. Another limitation of this measure is that it does not
reflect the significant costs borne by the Company for income taxes, debt servicing costs, the share of OIBDA
related to the minority ownership, the results of the Company’s equity investments or other non-operational income
or expense. Management 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 from the exercise of stock options, less cash
provided by (used by) discontinued operations, capital expenditures, partnership distributions and principal
payments on capital leases. Management uses Free Cash Flow to evaluate the Company’s business. The
Company believes this measure is an important indicator of its liquidity, including its ability to reduce net debt
and make strategic investments, because it reflects the Company’s operating cash flow after considering the
significant capital expenditures required to operate its business. A limitation of this measure, however, is that it does
not reflect payments made in connection with investments and acquisitions, which reduce liquidity. To compensate
for this limitation, management evaluates such expenditures through other financial measures such as return on
investment analyses.
Both OIBDA and Free Cash Flow should be considered in addition to, not as a substitute for, the Company’s
Operating Income, net income and various cash flow measures (e.g., cash provided by operating activities), as well
as other measures of financial performance and liquidity reported in accordance with GAAP, and may not be
comparable to similarly titled measures used by other companies. A reconciliation of OIBDA to Operating Income
is presented under “Results of Operations.” A reconciliation of Free Cash Flow to cash provided by operating
activities is presented under “Financial Condition and Liquidity.”
RESULTS OF OPERATIONS
Changes in Basis of Presentation
Consolidation of Kansas City Pool
On January 1, 2007, the Company began consolidating the results of the Kansas City Pool it received upon the
distribution of the assets of TKCCP to TWC and Comcast. Prior to January 1, 2007, the Company accounted for
TKCCP as an equity-method investment. The results of operations for the Kansas City Pool have been presented
below separately from the results of the Legacy Systems.
Discontinued Operations
The Company has reflected the results of operations and financial condition of the Transferred Systems as
discontinued operations for all periods presented. See Note 4 to the accompanying consolidated financial
statements for additional information regarding the discontinued operations.
Reclassifications
Certain reclassifications have been made to the prior years’ financial information to conform to the
December 31, 2007 presentation.
Recent Accounting Standards
See Note 2 to the accompanying consolidated financial statements for a discussion of the accounting standards
adopted in 2007 and recent accounting standards not yet adopted.
52
TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)