Time Warner Cable 2008 Annual Report Download - page 89

operations), Comedy Central (which was subsequently sold) and the Courtroom Television Network (d/b/a truTV
effective January 1, 2008) (collectively, the “Non-cable Businesses”). In connection with the TWE Restructuring,
some of these commitments were not transferred with their applicable Non-cable Business and they remain
contingent commitments of TWE. Specifically, in connection with the Non-cable Businesses’ former investment in
the Six Flags theme parks located in Georgia and Texas (“Six Flags Georgia” and “Six Flags Texas,” respectively,
and, collectively, the “Parks”), in 1997, TWE and a subsidiary of Time Warner, Historic TW Inc. (formerly known
as Time Warner Inc., “Historic TW”), each agreed to guarantee (the “Six Flags Guarantee”) certain obligations of
the partnerships that hold the Parks (the “Partnerships”) for the benefit of the limited partners in such Partnerships,
including the following (the “Guaranteed Obligations”): (a) making a minimum annual distribution to the limited
partners of the Partnerships (the minimum was approximately $61 million in 2008 and is subject to annual cost of
living adjustments); (b) making a minimum amount of capital expenditures each year (an amount approximating
6% of the Parks’ annual revenues); (c) offering each year to purchase 5% of the limited partnership units of the
Partnerships (plus any such units not purchased pursuant to such offer in any prior year) based on an aggregate price
for all limited partnership units at the higher of (i) $250 million in the case of Six Flags Georgia and $374.8 million
in the case of Six Flags Texas (the “Base Valuations”) and (ii) a weighted average multiple of EBITDA for the
respective Park over the previous four-year period (the “Cumulative LP Unit Purchase Obligation”); (d) making
annual ground lease payments; and (e) either (i) purchasing all of the outstanding limited partnership units through
the exercise of a call option upon the earlier of the occurrence of certain specified events and the end of the term of
each of the Partnerships in 2027 (Six Flags Georgia) and 2028 (Six Flags Texas) (the “End of Term Purchase”) or
(ii) causing each of the Partnerships to have no indebtedness and to meet certain other financial tests as of the end of
the term of the Partnership. The aggregate amount payable in connection with an End of Term Purchase option on
either Park will be the Base Valuation applicable to such Park, adjusted for changes in the consumer price index
from December 1996, in the case of Six Flags Georgia, and December 1997, in the case of Six Flags Texas, through
December of the year immediately preceding the year in which the End of Term Purchase occurs, in each case,
reduced ratably to reflect limited partnership units previously purchased.
In connection with Time Warner’s 1998 sale of Six Flags Entertainment Corporation (which held the
controlling interests in the Parks) to Six Flags, Inc. (formerly Premier Parks Inc.) (“Six Flags”), Six Flags,
Historic TW and TWE, among others, entered into a Subordinated Indemnity Agreement (the “Six Flags Indemnity
Agreement”) pursuant to which Six Flags agreed to guarantee the performance of the Guaranteed Obligations when
due and, to indemnify Historic TW and TWE, among others, in the event that the Guaranteed Obligations are not
performed and the Six Flags Guarantee is called upon. In the event of a default of Six Flags’ obligations under the
Six Flags Indemnity Agreement, the Six Flags Indemnity Agreement and related agreements provide, among other
things, that Historic TW and TWE have the right to acquire control of the managing partner of the Parks. Six Flags’
obligations to Historic TW and TWE are further secured by its interest in all limited partnership units that are held
by Six Flags.
Additionally, Time Warner and WCI have agreed, on a joint and several basis, to indemnify TWE from and
against any and all of these contingent liabilities, but TWE remains a party to these commitments. In the event that
TWE is required to make a payment related to any contingent liabilities of the TWE Non-cable Businesses, TWE
will recognize an expense from discontinued operations and will receive a capital contribution from Time Warner
and/or its subsidiary, WCI, for reimbursement of the incurred expenses. Additionally, costs related to any
acquisition and subsequent distribution to Time Warner would also be treated as an expense of discontinued
operations to be reimbursed by Time Warner. Pursuant to the original terms of the Six Flags Guarantee, TWE is
expected to terminate its obligations thereunder in connection with the Separation Transactions. Also in connection
with the Separation Transactions, TWE is expected to assign its rights and obligations under the Six Flags
Indemnity Agreement to Warner Bros. Entertainment Inc., a subsidiary of Time Warner.
In November 2007, Moody’s Investors Service, Standard & Poor’s and Fitch Ratings downgraded their credit
ratings for Six Flags. In March 2008, Moody’s Investors Service changed Six Flags’ rating outlook to negative from
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)