Time Warner Cable 2008 Annual Report Download - page 108

Download and view the complete annual report

Please find page 108 of the 2008 Time Warner Cable annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 172

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172

$14.822 billion. The impairment charge by unit of accounting, as well as the remaining value of the cable franchise
rights by unit of accounting as of December 31, 2008, is as follows (in millions):
Balance as of
December 31,
2007 Impairment
Other
Activity
Balance as of
December 31,
2008
West........................................ $ 6,908 $ (3,558) $ — $ 3,350
New York City ................................ 5,501 (2,156) — 3,345
Texas....................................... 4,971 (3,270) (1) 1,700
Midwest ..................................... 7,863 (2,835) — 5,028
Carolinas .................................... 5,558 (1,659) 9 3,908
Upstate New York.............................. 6,605 (962) 2 5,645
Kansas City .................................. 388 — 5 393
National ..................................... 1,128 (382) (24) 722
$38,922 $(14,822) $ (9) $24,091
The aggregate impairment charge was primarily attributable to the use of higher discount rates, which
accounted for approximately two-thirds of the decline in fair value as compared to the impairment test performed in
May 2008 and lower projected future cash flows related to the cable franchise rights utilized in the DCF valuation
analyses (which accounted for the remaining approximately one-third decline). Although the Company continues to
project future growth in cash flows, such growth is lower than that estimated at the time the cable franchise rights
were acquired. The higher discount rates (on average approximately 12.5% as compared to approximately 10%
used in the May 2008 valuation) reflect an increase in the risks inherent in the estimated future cash flows
attributable to the individual cable franchise rights; this increase in risk is due to the current economic volatility,
which became more pronounced during the fourth quarter of 2008. The discount rates used in both the May 2008
and December 2008 analyses include significant risk premiums of up to 250 basis points to the Company’s
weighted-average cost of capital to reflect the greater uncertainty in the cash flows attributable to the Company’s
cable franchise rights. Furthermore, had the Company used a discount rate in assessing the impairment of its cable
franchise rights that was 1% higher across all units of accounting (holding all other assumptions unchanged) the
Company would have recorded an additional impairment charge of approximately $3.0 billion.
The reduction in estimated future cash flows since May 2008 reflects the impact of the weaker economy and
increased competition, including fourth quarter 2008 subscriber trends (specifically, lower fourth quarter revenue
generating unit net additions) lower advertising revenues and higher video programming costs (resulting from,
among other things, higher projected costs for acquiring retransmission consent rights) offset in part by reduced
capital expenditures and increased cost controls in other areas of the Company. In addition, the terminal growth
rates used in the analyses for both the May 2008 and December 2008 impairment tests were the same and in line
with historical U.S. gross domestic product growth rates.
As a result of the cable franchise rights impairment taken in 2008, the carrying values of the Company’s
impaired cable franchise rights (which represented the cable franchise rights in all but one of the Company’s eight
units of accounting) were re-set to their estimated fair values as of December 31, 2008. Consequently, any further
decline in the estimated fair values of these cable franchise rights could result in additional cable franchise rights
impairments. Management has no reason to believe that any one unit of accounting is more likely than any other to
incur further impairments of its cable franchise rights. It is possible that such impairments, if required, could be
material and may need to be recorded prior to the fourth quarter of 2009 (i.e., during an interim period) if the
Company’s results of operations or other factors require such assets to be tested for impairment at an interim date.
For illustrative purposes only, had the fair values of each of the cable franchise rights been lower by 10% as of
December 31, 2008, the Company would have recorded an additional cable franchise rights impairment of
approximately $2.37 billion; had the fair values of the cable franchise rights been lower by 20%, the Company
98
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)