Time Warner Cable 2008 Annual Report Download - page 83

Cash used by investing activities decreased from $11.999 billion in 2006 to $3.432 billion in 2007. This
decrease was principally due to payments associated with the Adelphia/Comcast Transactions, which closed on
July 31, 2006, and a decrease in investment spending related to the Company’s investment in SpectrumCo. This
decrease was partially offset by an increase in capital expenditures from continuing operations, driven by the
Acquired Systems, as well as the continued roll-out of advanced digital services in the Legacy Systems, and the
receipt of proceeds associated with the repayment by Comcast of TKCCP debt owed to TWE-A/N during 2006.
TWC’s capital expenditures from continuing operations included the following major categories (in millions):
2008 2007 2006
Year Ended December 31,
Customer premise equipment
(a)
................................... $ 1,628 $ 1,485 $ 1,125
Scalable infrastructure
(b)
........................................ 600 604 568
Line extensions
(c)
............................................. 350 372 280
Upgrades/rebuilds
(d)
........................................... 315 315 151
Support capital
(e)
............................................. 629 657 594
Total capital expenditures ....................................... $ 3,522 $ 3,433 $ 2,718
(a)
Amounts represent costs incurred in the purchase and installation of equipment that resides at a customer’s home or business for the
purpose of receiving/sending video, high-speed data and/or voice signals. Such equipment typically includes digital (including high-
definition) set-top boxes, remote controls, high-speed data modems, telephone modems and the costs of installing such new equipment.
Customer premise equipment also includes materials and labor incurred to install the “drop” cable that connects a customer’s dwelling or
business to the closest point of the main distribution network.
(b)
Amounts represent costs incurred in the purchase and installation of equipment that controls signal reception, processing and transmission
throughout TWC’s distribution network, as well as controls and communicates with the equipment residing at a customer’s home or
business. Also included in scalable infrastructure is certain equipment necessary for content aggregation and distribution (video-on-de-
mand equipment) and equipment necessary to provide certain video, high-speed data and Digital Phone service features (voicemail,
e-mail, etc.).
(c)
Amounts represent costs incurred to extend TWC’s distribution network into a geographic area previously not served. These costs
typically include network design, the purchase and installation of fiber optic and coaxial cable and certain electronic equipment.
(d)
Amounts primarily represent costs incurred to upgrade or replace certain existing components or an entire geographic area of TWC’s
distribution network. These costs typically include network design, the purchase and installation of fiber optic and coaxial cable and
certain electronic equipment.
(e)
Amounts represent all other capital purchases required to run day-to-day operations. These costs typically include vehicles, land and
buildings, computer hardware/software, office equipment, furniture and fixtures, tools and test equipment. Amounts include capitalized
software costs of $201 million, $196 million and $137 million in 2008, 2007 and 2006, respectively.
TWC incurs expenditures associated with the construction of its cable systems. Costs associated with the
construction of the cable transmission and distribution facilities and new cable service installations are capitalized.
TWC generally capitalizes expenditures for tangible fixed assets having a useful life of greater than one year.
Capitalized costs include direct material, labor and overhead, as well as interest. Sales and marketing costs, as well
as the costs of repairing or maintaining existing fixed assets, are expensed as incurred. With respect to certain
customer premise equipment, which includes set-top boxes and high-speed data and telephone cable modems, TWC
capitalizes installation charges only upon the initial deployment of these assets. All costs incurred in subsequent
disconnects and reconnects are expensed as incurred. Depreciation on these assets is provided generally using the
straight-line method over their estimated useful lives. For set-top boxes and modems, the useful life is 3 to 5 years,
and, for distribution plant, the useful life is up to 16 years.
The Company expects that capital expenditures will decline in 2009 as compared to 2008.
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)