Time Warner Cable 2008 Annual Report Download - page 112

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Contemporaneous Purchases and Sales
In the normal course of business, TWC enters into multiple-element transactions where the Company is
simultaneously both a customer and a vendor with the same counterparty. For example, when negotiating the terms
of programming purchase contracts with cable networks, TWC may at the same time negotiate for the sale of
advertising to the same cable network. Arrangements, although negotiated contemporaneously, may be documented
in one or more contracts. In accounting for such arrangements, the Company looks to the guidance contained in the
following authoritative literature:
• Accounting Principles Board Opinion No. 29, Accounting for Nonmonetary Transactions;
• FASB Statement No. 153, Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29;
• EITF Issue No. 01-9, Accounting for Consideration Given by a Vendor to a Customer; and
• EITF Issue No. 02-16, Accounting by a Customer (Including a Reseller) for Certain Consideration
Received from a Vendor (“EITF 02-16”).
The Company’s accounting policy for each transaction negotiated contemporaneously is to record each
element of the transaction based on the respective estimated fair values of the products or services purchased and the
products or services sold. The judgments made in determining fair value in such transactions impact the amount of
revenues, expenses and net income recognized over the respective terms of the transactions, as well as the respective
periods in which they are recognized.
In determining the fair value of the respective elements, TWC refers to quoted market prices (where available),
historical transactions or comparable cash transactions. The most frequent transactions of this type that the
Company encounters involve funds received from its vendors, which the Company accounts for in accordance with
EITF 02-16. The Company records cash consideration received from a vendor as a reduction in the price of the
vendor’s product unless (i) the consideration is for the reimbursement of a specific, incremental, identifiable cost
incurred in which case it would record the cash consideration received as a reduction in such cost or (ii) the
Company is providing an identifiable benefit in exchange for the consideration in which case it recognizes revenue
for this element.
With respect to programming vendor advertising arrangements being negotiated simultaneously with the same
cable network, TWC assesses whether each piece of the arrangements is at fair value. The factors that are
considered in determining the individual fair values of the programming and advertising vary from arrangement to
arrangement and include:
• existence of a “most-favored-nation” clause or comparable assurances as to fair market value with respect
to programming;
• comparison to fees under a prior contract;
• comparison to fees paid for similar networks; and
• comparison to advertising rates paid by other advertisers on the Company’s systems.
Sales of Multiple Products or Services
The Company’s policy for revenue recognition in instances where multiple deliverables are sold contempo-
raneously to the same counterparty is based on the guidelines of EITF Issue No. 00-21, Revenue Arrangements with
Multiple Deliverables, and SAB No. 104, Revenue Recognition. Specifically, if the Company enters into sales
contracts for the sale of multiple products or services, then the Company evaluates whether it has fair value evidence
for each deliverable in the transaction. If the Company has fair value evidence for each deliverable of the
transaction, then it accounts for each deliverable in the transaction separately, based on the relevant revenue
recognition accounting policies. If the Company is unable to determine fair value for one or more undelivered
elements of the transaction, the Company recognizes revenue on a straight-line basis over the term of the agreement.
For example, the Company sells video, high-speed data and voice services to subscribers in a bundled package at a
rate lower than if the subscriber purchases each product on an individual basis. Subscription revenues received from
102
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)