Time Warner Cable 2008 Annual Report Download - page 62

slowdown in growth across all revenue generating unit categories, which the Company believes is partly a result of
the challenging economic environment and a general reduction in consumer spending. The Company believes it is
premature to determine if this is a long- or short-term development and that the impact of a protracted economic
downturn on its financial and subscriber results is difficult to estimate; however, the Company believes that growth
in revenue generating unit net additions, as well as growth in other digital services (e.g., digital video recorders and
video-on-demand), will slow in 2009 as compared to 2008. In addition, the Company has continued to see a decline
in its Advertising revenues from national, regional and local businesses, which it expects to continue in 2009.
Excluding the $14.822 billion noncash impairment of cable franchise rights and the $58 million loss on sale of
certain cable systems (as discussed below), the Company expects that its year-over-year growth rate in Operating
Income will be lower in 2009 (as compared to the same measure in 2008) as a result of, among other things, slower
growth in revenues and higher video programming costs, pension expense and restructuring charges, partially offset
by various cost saving initiatives. The Company also expects that capital expenditures will decline in 2009 as
compared to 2008.
Despite the current economic environment, the Company believes it continues to have strong liquidity to meet its
needs for the foreseeable future. As of December 31, 2008, the Company had $13.130 billion of unused committed
capacity (including cash and equivalents and credit facilities containing commitments from a geographically diverse
group of major financial institutions), $10.855 billion of which TWC expects to use to finance the Special Dividend
(as defined below). Additionally, there are no significant maturities of the Company’s long-term debt prior to February
2011. See “Financial Condition and Liquidity” for further details regarding the Company’s committed capacity.
Beginning in the first quarter of 2009, TWC is undertaking a significant restructuring, primarily consisting of
headcount reductions, and expects to incur restructuring charges ranging from approximately $50 million to
$100 million during 2009.
Recent Developments
Impairment of Cable Franchise Rights
As discussed in more detail in “Critical Accounting Policies—Asset Impairments—Goodwill and Indefinite-
lived Intangible Assets,” during the fourth quarter of 2008, the Company recorded a noncash impairment of
$14.822 billion to reduce the carrying value of its cable franchise rights as a result of its annual impairment testing
of goodwill and indefinite-lived intangible assets.
Separation from Time Warner, Recapitalization and Reverse Stock Split of TWC Common Stock
On May 20, 2008, TWC and its subsidiaries, TWE and TW NY, entered into the Separation Agreement with
Time Warner and its subsidiaries, WCI, Historic TW and ATC. TWC’s separation from Time Warner will take place
through a series of related transactions, the occurrence of each of which is a condition to the next. First, Time
Warner will complete certain internal restructuring transactions not affecting TWC. Next, following the satisfaction
or waiver of certain conditions, including those mentioned below, Historic TW will transfer its 12.43% non-voting
common stock interest in TW NY to TWC in exchange for 80 million newly issued shares of TWC’s Class A
common stock (the “TW NY Exchange”). Following the TW NY Exchange, Time Warner will complete certain
additional restructuring steps that will make Time Warner the direct owner of all shares of TWC’s Class A common
stock and Class B common stock previously held by its subsidiaries (all of Time Warner’s restructuring transaction
steps being referred to collectively as the “TW Internal Restructuring”). Upon completion of the TW Internal
Restructuring, TWC’s board of directors or a committee thereof will declare a special cash dividend to holders of
TWC’s outstanding Class A common stock and Class B common stock, including Time Warner, in an amount equal
to $10.27 per share (aggregating $10.855 billion) (the “Special Dividend”). The Special Dividend will be paid prior
to the completion of TWC’s separation from Time Warner. Following the receipt by Time Warner of its share of the
Special Dividend, TWC will file with the Secretary of State of the State of Delaware an amended and restated
52
TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)