Time Warner Cable 2008 Annual Report Download - page 91

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earning assets, the Company would also earn more (less) interest income due to such an increase (decrease) in
interest rates.
Fixed-rate Debt and TW NY Cable Preferred Membership Units
As of December 31, 2008, TWC had fixed-rate debt and TW NY Cable Preferred Membership Units with an
outstanding balance of $14.970 billion, including an unamortized fair value adjustment of $114 million, and an
estimated fair value of $14.587 billion. Based on TWC’s fixed-rate debt obligations outstanding at December 31,
2008, a 25 basis point increase or decrease in the level of interest rates would, respectively, decrease or increase the
fair value of the fixed-rate debt by approximately $263 million. Such potential increases or decreases are based on
certain simplifying assumptions, including a constant level of fixed-rate debt 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.
Equity Risk
TWC is also exposed to market risk as it relates to changes in the market value of its investments. TWC invests
in equity instruments of companies for operational and strategic business purposes. These investments are subject to
significant fluctuations in fair market value due to volatility in the general equity markets and the specific industries
in which the companies operate. As of December 31, 2008, TWC had $895 million of investments, which primarily
included $663 million related to SpectrumCo and $167 million related to Clearwire LLC.
Some of TWC’s employees have been granted options to purchase shares of Time Warner common stock in
connection with their past employment with subsidiaries and affiliates of Time Warner, including TWC. TWC has
agreed that, upon the exercise by any of its officers or employees of any options to purchase Time Warner common
stock, TWC will reimburse Time Warner in an amount equal to the excess of the closing price of a share of Time
Warner common stock on the date of the exercise of the option over the aggregate exercise price paid by the
exercising officer or employee for each share of Time Warner common stock. TWC accrues stock option
distributions payable to Time Warner, which are not payable until the underlying options are exercised and then
only subject to limitations on cash distributions in accordance with the senior unsecured revolving credit facilities.
Any accrued amounts will be adjusted in subsequent accounting periods based on changes in the quoted market
prices for Time Warner’s common stock. As of December 31, 2008, TWC had no stock option distributions payable
to Time Warner. See Note 12 to the accompanying consolidated financial statements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The Company’s consolidated financial statements are prepared in accordance with GAAP, which requires
management to make estimates, judgments and assumptions that affect the amounts reported in the consolidated
financial statements and accompanying notes. Management considers an accounting policy and estimate to be
critical if it requires the use of assumptions that were uncertain at the time the estimate was made and if changes in
the estimate or selection of a different estimate could have a material effect on the Company’s consolidated results
of operations or financial condition. The development and selection of the following critical accounting policies and
estimates have been determined by the management of TWC and the related disclosures have been reviewed with
the Audit Committee of the board of directors of TWC. Due to the significant judgment involved in selecting certain
of the assumptions used in these areas, it is possible that different parties could choose different assumptions and
reach different conclusions. For a summary of all of the Company’s significant accounting policies, see Note 3 to the
accompanying consolidated financial statements.
81
TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)