Time Warner Cable 2007 Annual Report Download - page 71

TWC’s capital expenditures from continuing operations included the following major categories (in millions):
2007 2006 2005
Years Ended December 31,
Customer premise equipment
(a)
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,485 $1,125 $ 805
Scalable infrastructure
(b)
................................................. 604 568 325
Line extensions
(c)
..................................................... 372 280 235
Upgrades/rebuilds
(d)
.................................................... 315 151 113
Support capital
(e)
...................................................... 657 594 359
Total capital expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,433 $2,718 $1,837
(a)
Amounts represent costs incurred 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 the costs of installing such new equipment. Customer premise
equipment also includes materials and labor incurred to install the “drop” cable that connects a customer’s dwelling or business to the
closest point of the main distribution network.
(b)
Amounts represent 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 or
business. Also included in scalable infrastructure is certain equipment necessary for content aggregation and distribution
(video-on-demand equipment) and equipment necessary to provide certain video, high-speed data and Digital Phone service features
(voicemail, e-mail, etc.).
(c)
Amounts represent 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)
Amounts represent 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)
Amounts represent all other capital purchases required to run day-to-day operations. These costs typically include vehicles, land and
buildings, computer hardware/software, office equipment, furniture and fixtures, tools and test equipment.
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 set-top boxes and high-speed data and telephone 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 set-top boxes and modems, the
useful life is 3 to 5 years, and, for distribution plant, 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 significant capital expenditures related to the continued
integration of the Acquired Systems, including improvements to plant and technical performance and upgrading
system capacity to allow the Company to offer its advanced services and features in the Acquired Systems. Through
December 31, 2007, TWC incurred approximately $400 million of such expenditures (including approximately
$200 million incurred during 2007). These upgrades were substantially completed by the end of 2007.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)