Time Warner Cable 2008 Annual Report Download - page 114

becomes available and adjusts liabilities as appropriate. The actual cost of resolving a claim may be substantially
different from the amount of the liability recorded. Differences between the estimated and actual amounts
determined upon ultimate resolution, individually or in the aggregate, are not expected to have a material adverse
effect on the Company’s consolidated financial position but could possibly be material to the Company’s
consolidated results of operations or cash flow for any one period.
Income Taxes
TWC is not a separate taxable entity for U.S. federal and various state income tax purposes and its results are
included in the consolidated U.S. federal and certain state income tax returns of Time Warner. The income tax
benefits and provisions, related tax payments, and current and deferred tax balances have been prepared as if TWC
operated as a stand-alone taxpayer for all periods presented in accordance with the tax sharing arrangement between
TWC and Time Warner. Under the tax sharing arrangement, TWC is obligated to make tax sharing payments to
Time Warner as if it were a separate payer. Income taxes are provided using the asset and liability method prescribed
by FAS 109. Under this method, income taxes (i.e., deferred tax assets, deferred tax liabilities, taxes currently
payable/refunds receivable and tax expense) are recorded based on amounts refundable or payable in the current
year and include the results of any difference between GAAP and tax reporting. Deferred income taxes reflect the
tax effect of net operating losses, capital losses, and general business credit carryforwards and the net tax effects of
temporary differences between the carrying amount of assets and liabilities for financial statement and income tax
purposes, as determined under enacted tax laws and rates. Valuation allowances are established when management
determines that it is more likely than not that some portion or all of the deferred tax asset will not be realized. The
financial effect of changes in tax laws or rates is accounted for in the period of enactment.
The Company made cash tax payments to Time Warner of $9 million in 2008, $263 million in 2007 and
$444 million in 2006.
On January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for
Uncertainty in Income Taxes — an interpretation of FASB Statement No. 109 (“FIN 48”), which clarifies the
accounting for uncertainty in income tax positions. This interpretation requires the Company to recognize in the
consolidated financial statements those tax positions determined to be “more likely than not” of being sustained
upon examination, based on the technical merits of the positions.
From time to time, the Company engages in transactions in which the tax consequences may be subject to
uncertainty. Examples of such transactions include business acquisitions and dispositions, including dispositions
designed to be tax free, issues related to consideration paid or received, and certain financing transactions.
Significant judgment is required in assessing and estimating the tax consequences of these transactions. The
Company prepares and files tax returns based on interpretation of tax laws and regulations. In the normal course of
business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations
may result in future tax and interest assessments by these taxing authorities. In determining the Company’s tax
provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such
positions are determined to be “more likely than not” of being sustained upon examination, based on their technical
merits. That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return
that it believes are “more likely than not” of being sustained. There is considerable judgment involved in
determining whether positions taken on the tax return are “more likely than not” of being sustained.
The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and
settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.
The consolidated tax provision of any given year includes adjustments to prior year income tax accruals that are
considered appropriate and any related estimated interest. The Company’s policy is to recognize, when applicable,
interest and penalties on uncertain tax positions as part of income tax expense. Refer to Note 11 for further details.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)