Time Warner Cable 2008 Annual Report Download - page 90

stable and downgraded its speculative-grade liquidity rating. In June 2008, Moody’s Investors Service and Fitch
Ratings downgraded their senior unsecured credit ratings for Six Flags. In September 2008, Moody’s Investors
Service downgraded Six Flags’ corporate family rating. To date, no payments have been made by Historic TW or
TWE pursuant to the Six Flags Guarantee. In its quarterly report on Form 10-Q for the period ended September 30,
2008, Six Flags reported an estimated maximum Cumulative LP Unit Purchase Obligation for 2009 of approx-
imately $335 million. The aggregate undiscounted estimated future cash flow requirements covered by the Six
Flags Guarantee over the remaining term of the agreements are approximately $1.4 billion. Six Flags has also
publicly disclosed that it has deposited approximately $15 million in an escrow account as a source of funds in the
event Historic TW or TWE is required to fund any portion of the Guaranteed Obligations in the future.
Because the Six Flags Guarantee existed prior to the Company’s adoption of FASB Interpretation No. 45,
Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebt-
edness of Others (“FIN 45”), and no modifications to the arrangements have been made since the date the guarantee
came into existence, the recognition requirements of FIN 45 are not applicable to the arrangements and the
Company has continued to account for the Guaranteed Obligations in accordance with FASB Statement No. 5,
Accounting for Contingencies (“FAS 5”). Based on its evaluation of the current facts and circumstances surrounding
the Guaranteed Obligations and the Six Flags Indemnity Agreement (including the recent financial performance
reported for the Parks and by Six Flags), the Company has concluded that a probable loss does not exist and,
consequently, no liability for the arrangements has been recognized at December 31, 2008. Because of the specific
circumstances surrounding the arrangements and the fact that no active or observable market exists for this type of
financial guarantee, the Company is unable to determine a current fair value for the Guaranteed Obligations and
related Six Flags Indemnity Agreement.
Other Contingent Commitments
TWC has cable franchise agreements containing provisions requiring the construction of cable plant and the
provision of services to customers within the franchise areas. In connection with these obligations under existing
franchise agreements, TWC obtains surety bonds or letters of credit guaranteeing performance to municipalities and
public utilities and payment of insurance premiums. Such surety bonds and letters of credit as of December 31, 2008
and 2007 totaled $288 million and $299 million, respectively. Payments under these arrangements are required only
in the event of nonperformance. TWC does not expect that these contingent commitments will result in any amounts
being paid in the foreseeable future.
TWC is required to make cash distributions to Time Warner when employees of the Company exercise
previously issued Time Warner stock options. For more information, see “Market Risk Management—Equity Risk”
below.
MARKET RISK MANAGEMENT
Market risk is the potential gain/loss arising from changes in market rates and prices, such as interest rates.
Interest Rate Risk
Variable-rate Debt
As of December 31, 2008, TWC had an outstanding balance of variable-rate debt of $3.045 billion. Based on
TWC’s variable-rate obligations outstanding at December 31, 2008, each 25 basis point increase or decrease in the
level of interest rates would, respectively, increase or decrease TWC’s annual interest expense and related cash
payments by approximately $8 million. Such potential increases or decreases are based on certain simplifying
assumptions, including a constant level of variable-rate debt for all maturities and an immediate, across-the-board
increase or decrease in the level of interest rates with no other subsequent changes for the remainder of the period.
Conversely, since almost all of the Company’s cash balance of $5.449 billion is invested in variable-rate interest-
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)