Time Warner Cable 2008 Annual Report Download - page 63

certificate of incorporation, pursuant to which, among other things, each outstanding share of TWC Class A
common stock (including any shares of Class A common stock issued in the TW NY Exchange) and TWC Class B
common stock will automatically be converted into one share of common stock, par value $0.01 per share (the
“TWC Common Stock”) (the “Recapitalization”). Once the TW NY Exchange, the TW Internal Restructuring, the
payment of the Special Dividend and the Recapitalization have been completed, TWC’s separation from Time
Warner (the “Separation”) will proceed in the form of a pro rata dividend of all shares of TWC Common Stock held
by Time Warner to holders of Time Warner’s common stock (the “Distribution”). The Separation, the TW NY
Exchange, the TW Internal Restructuring, the Special Dividend, the Recapitalization and the Distribution
collectively are referred to as the “Separation Transactions.”
The Separation Agreement contains customary covenants, and consummation of the Separation Transactions
is subject to customary closing conditions. As of February 12, 2009, all regulatory and other necessary govern-
mental reviews of the Separation Transactions have been satisfactorily completed. Time Warner and TWC expect
the Separation Transactions to be consummated in the first quarter of 2009. See Item 1A, “Risk Factors,” in Part I of
this report for a discussion of risk factors relating to the Separation.
In connection with the Separation Transactions, the Company has been authorized to effectuate a reverse stock
split of the TWC Common Stock at a 1-for-3 ratio.
During the year ended December 31, 2008, the Company incurred pretax costs related to the Separation of
$62 million, which consisted of direct transaction costs (e.g., legal and professional fees) of $17 million (which are
included in other expense, net, in the accompanying consolidated statement of operations) and debt issuance costs of
$45 million (which are included in interest expense, net, in the accompanying consolidated statement of operations).
The debt issuance costs are primarily related to the portion of the upfront loan fees for the 2008 Bridge Facility that
was expensed due to the reduction of commitments under such facility as a result of the 2008 Bond Offerings. The
Company expects to incur additional direct transaction costs and financing costs related to the Separation.
In addition, in connection with the Separation Transactions, and as provided for in Time Warner’s equity plans,
the number of Time Warner stock options and restricted stock units outstanding at the Separation and the exercise
prices of such stock options will be adjusted to maintain the fair value of those awards. The changes in the number of
equity awards and the exercise prices will be determined by comparing the fair value of such awards immediately
prior to the Separation Transactions to the fair value of such awards immediately after the Separation Transactions.
In performing this analysis, the only assumptions that would change relate to the Time Warner stock price and the
employee’s exercise price. The modifications to the outstanding equity awards will be made pursuant to existing
antidilution provisions in Time Warner’s equity plans.
Under the terms of Time Warner’s equity plans and related award agreements, as a result of the Separation,
TWC employees who hold Time Warner equity awards will be treated as if their employment with Time Warner had
been terminated without cause at the time of the Separation. For most TWC employees, this treatment will result in
the forfeiture of unvested stock options and shortened exercise periods for vested stock options and pro rata vesting
of the next installment of (and forfeiture of the remainder of) the restricted stock units. TWC plans to grant
“make-up” TWC equity awards or make cash payments to TWC employees that are generally intended to offset any
loss of economic value in Time Warner equity awards as a result of the Separation.
Finally, in connection with the Special Dividend, and as provided for in the Company’s equity plans and related
award agreements, the number and the exercise prices of outstanding TWC stock options will be adjusted to maintain
the fair value of those awards. The changes in the number of shares subject to options and the exercise prices will be
determined by comparing the fair value of such awards immediately prior to the Special Dividend to the fair value of
such awards immediately after the Special Dividend. The modifications to the outstanding equity awards will be made
pursuant to existing antidilution provisions in TWC’s equity plans and related award agreements.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)