Time Warner Cable 2007 Annual Report Download - page 76

The Company’s total rent expense, which primarily includes facility rental expense and pole attachment rental
fees, amounted to $182 million in 2007, $149 million in 2006 and $98 million in 2005.
Contingent Commitments
The Six Flags Guarantee
Prior to the restructuring of TWE, which was completed in March 2003 (the “TWE Restructuring”), TWE had
various contingent commitments, including guarantees, related to TWE’s non-cable businesses, including Warner
Bros., Home Box Office, and TWE’s interests in The WB Television Network (which has subsequently ceased
operations), Comedy Central (which was subsequently sold) and the Courtroom Television Network (d/b/a truTV
effective January 1, 2008) (collectively, the “Non-cable Businesses”). In connection with the TWE Restructuring,
some of these commitments were not transferred with their applicable Non-cable Business and they remain
contingent commitments of TWE. Specifically, in connection with the Non-cable Businesses’ former investment in
the Six Flags theme parks located in Georgia and Texas (“Six Flags Georgia” and “Six Flags Texas,” respectively,
and, collectively, the “Parks”), in 1997, Time Warner and TWE each agreed to guarantee (the “Six Flags
Guarantee”) certain obligations of the partnerships that hold the Parks (the “Partnerships”) for the benefit of
the limited partners in such Partnerships, including the following (the “Guaranteed Obligations”): (a) making a
minimum annual distribution to the limited partners of the Partnerships (the minimum was approximately
$58.2 million in 2007 and is subject to annual cost of living adjustments); (b) making a minimum amount of
capital expenditures each year (an amount approximating 6% of the Parks’ annual revenues); (c) offering each year
to purchase 5% of the limited partnership units of the Partnerships (plus any such units not purchased pursuant to
such offer in any prior year) based on an aggregate price for all limited partnership units at the higher of
(i) $250 million in the case of Six Flags Georgia and $374.8 million in the case of Six Flags Texas (the “Base
Valuations”) and (ii) a weighted average multiple of EBITDA for the respective Park over the previous four-year
period (the “Cumulative LP Unit Purchase Obligation”); (d) making annual ground lease payments; and (e) either
(i) purchasing all of the outstanding limited partnership units through the exercise of a call option upon the earlier of
the occurrence of certain specified events and the end of the term of each of the Partnerships in 2027 (Six Flags
Georgia) and 2028 (Six Flags Texas) (the “End of Term Purchase”) or (ii) causing each of the Partnerships to have
no indebtedness and to meet certain other financial tests as of the end of the term of the Partnership. The aggregate
amount payable in connection with an End of Term Purchase option on either Park will be the Base Valuation
applicable to such Park, adjusted for changes in the consumer price index from December 1996, in the case of Six
Flags Georgia, and December 1997, in the case of Six Flags Texas, through December of the year immediately
preceding the year in which the End of Term Purchase occurs, in each case, reduced ratably to reflect limited
partnership units previously purchased.
In connection with Time Warner’s 1998 sale of Six Flags Entertainment Corporation (which held the
controlling interests in the Parks) to Six Flags Inc. (formerly Premier Parks Inc.) (“Six Flags”), Six Flags,
Historic TW Inc. (formerly known as Time Warner Inc., “Historic TW”) and TWE, among others, entered into a
Subordinated Indemnity Agreement pursuant to which Six Flags agreed to guarantee the performance of the
Guaranteed Obligations when due and to indemnify Historic TW and TWE, among others, in the event that the
Guaranteed Obligations are not performed and the Six Flags Guarantee is called upon. In the event of a default of
Six Flags’ obligations under the Subordinated Indemnity Agreement, the Subordinated Indemnity Agreement and
related agreements provide, among other things, that Historic TW and TWE have the right to acquire control of the
managing partner of the Parks. Six Flags’ obligations to Historic TW and TWE are further secured by its interest in
all limited partnership units that are held by Six Flags.
Additionally, Time Warner and Warner Communications Inc. (“WCI”), a subsidiary of Time Warner, have
agreed, on a joint and several basis, to indemnify TWE from and against any and all of these contingent liabilities,
but TWE remains 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 reimbursement
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)