Time Warner Cable 2008 Annual Report Download - page 72

Operating Income (Loss) before Depreciation and Amortization. As discussed above, Operating Loss before
Depreciation and Amortization in 2008 was negatively impacted by the $14.822 billion impairment of cable
franchise rights and the $58 million loss on the sale of certain non-core cable systems. Excluding these items,
Operating Income before Depreciation and Amortization increased principally as a result of revenue growth
(particularly in high margin high-speed data revenues), partially offset by higher costs of revenues and selling,
general and administrative expenses. Additionally, as discussed in “Overview—Recent Developments—Hurricane
Ike,” Operating Income before Depreciation and Amortization in 2008 included the $14 million negative impact of
Hurricane Ike on the cable systems in southeast Texas and Ohio.
Depreciation expense. The increase in depreciation expense was primarily associated with purchases of
customer premise equipment, scalable infrastructure and line extensions occurring during or subsequent to 2007.
Amortization expense. Amortization expense decreased primarily due to the absence of amortization expense
associated with customer relationships recorded in connection with the 2003 restructuring of TWE, which were
fully amortized as of the end of the first quarter of 2007.
Operating Income (Loss). Operating Loss in 2008 included the impairment of cable franchise rights and the
loss on the sale of cable systems, as discussed above. Excluding these items, Operating Income increased primarily
due to the increase in Operating Income before Depreciation and Amortization, partially offset by the increase in
depreciation expense, as discussed above.
Interest expense, net. Interest expense, net, increased primarily due to an increase in fixed-rate debt with higher
average interest rates as a result of the 2008 Bond Offerings. Additionally, interest expense, net, was impacted by
the April 2007 issuance of fixed-rate debt securities and, for 2008, also included $45 million of debt issuance costs
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. These items were partially
offset by a decrease in interest on the Company’s variable-rate debt, which resulted from both a decrease in variable-
rate debt and lower variable interest rates, and an increase in interest income. As a result of the 2008 Bond Offerings
and additional debt that the Company expects to issue in 2009 in connection with the Separation Transactions, the
Company expects that interest expense, net, will increase significantly in 2009.
Minority interest expense (income), net. Minority interest income, net, in 2008 included the impacts of the
impairment of cable franchise rights and the loss on the sale of cable systems, as discussed above. Excluding these
items, minority interest expense, net, increased primarily due to larger profits recorded by TW NY during 2008. Due
to pending changes in the ownership structure of the Company as a result of the Separation Transactions, the
Company expects that minority interest expense, net, will decrease significantly in 2009.
Other expense (income), net. Other expense (income), net, detail is shown in the table below (in millions):
2008 2007
Year Ended December 31,
Investment losses (gains)
(a)
............................................. $ 366 $ (146)
Income from equity investments, net ...................................... (16) (11)
Direct transaction costs related to the Separation Transactions
(b)
................. 17 —
Other ............................................................. — 1
Other expense (income), net ............................................ $ 367 $ (156)
(a)
2008 amount consists of pretax impairments on equity-method investments totaling $375 million (primarily consisting of the $367 million
impairment on the Company’s investment in Clearwire LLC) and a pretax gain of $9 million recorded on the sale of a cost-method
investment. 2007 amount consists of a pretax gain of $146 million as a result of the distribution of the assets of TKCCP to TWC and
Comcast on January 1, 2007, which was treated as a sale of the Company’s 50% equity interest in the pool of assets consisting of the
Houston cable systems (the “TKCCP Gain”).
(b)
Amount primarily consists of legal and professional fees.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)