Time Warner Cable 2008 Annual Report Download - page 65

transaction, TWC entered into a wholesale agreement with Sprint that allows TWC to offer wireless services
utilizing Sprint’s second-generation and third-generation network and a wholesale agreement with Clearwire that
will allow TWC to offer wireless services utilizing Clearwire’s mobile broadband wireless network. The Company
allocated $20 million of its $550 million investment in Clearwire LLC to its rights under these agreements, which
the Company believes represents the fair value of favorable pricing provisions contained in the agreements. Such
assets are included in other assets in the accompanying consolidated balance sheet as of December 31, 2008 and will
be amortized over the estimated lives of the agreements. The Company’s investment in Clearwire LLC is being
accounted for under the equity method of accounting. During the fourth quarter of 2008, the Company recorded a
noncash pretax impairment of $367 million on its investment in Clearwire LLC as a result of a significant decline in
the estimated fair value of Clearwire, reflecting the Clearwire Corp stock price decline from May 2008, when TWC
agreed to make its investment. The Company expects that Clearwire will incur losses in its early periods of
operation.
SpectrumCo Joint Venture
TWC is a participant in a joint venture with certain other cable companies (“SpectrumCo”) that holds
advanced wireless spectrum (“AWS”) licenses. Under certain circumstances, the members of SpectrumCo have the
ability to exit the venture and receive from the venture, subject to certain limitations and adjustments, AWS licenses
covering the areas in which they provide cable services. In January 2009, SpectrumCo redeemed the 10.9% interest
held by an affiliate of Cox Communications, Inc. (“Cox”) and Cox received AWS licenses, principally covering
areas in which Cox has cable services, and approximately $70 million in cash (of which TWC’s share was
$22 million). Following the closing of the Cox transaction, SpectrumCo’s AWS licenses cover 20 MHz over 80% of
the continental United States and Hawaii.
Sale of Certain Cable Systems
In December 2008, the Company sold a group of small cable systems, serving 78,000 basic video subscribers
and 126,000 revenue generating units as of November 30, 2008, located in areas outside of the Company’s core
geographic clusters. The sale price was $54 million, of which $3 million is included in receivables in the
accompanying consolidated balance sheet as of December 31, 2008. The Company does not expect that the sale of
these systems will have a material impact on the Company’s future financial results. The Company recorded a
pretax loss of $58 million on the sale of these systems during 2008, of which $13 million (primarily post-closing and
working capital adjustments) was recorded during the fourth quarter.
Hurricane Ike
During the third quarter of 2008, Hurricane Ike caused significant damage to a portion of TWC’s operations in
Texas, particularly in the Port Arthur, Beaumont, Orange and Bridge City areas. TWC’s cable systems in these areas
experienced significant damage, business interruption and a loss of customer relationships. As a result of Hurricane
Ike, the Company lost a small number of basic video subscribers and revenue generating units in its southeast Texas
cable systems. In addition to Texas, Hurricane Ike also caused physical damage and service outages in parts of Ohio.
For the year ended December 31, 2008, the Company estimates that both Operating Loss before Depreciation
and Amortization and Operating Loss were negatively impacted by $14 million as a result of service outages and
damage to the plant infrastructure caused by the storm. Additionally, the Company estimates that it incurred
approximately $10 million of capital expenditures during the fourth quarter of 2008 to replace property, plant and
equipment damaged by Hurricane Ike.
55
TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)