Time Warner Cable 2008 Annual Report Download - page 95

Legal Contingencies
The Company is subject to legal, regulatory and other proceedings and claims that arise in the ordinary course
of business. The Company records an estimated liability for those proceedings and claims arising in the ordinary
course of business based upon the probable and reasonably estimable criteria contained in FAS 5. The Company
reviews outstanding claims with internal, as well as external, counsel to assess the probability and the estimates of
loss. The Company reassesses the risk of loss as new information becomes available and adjusts liabilities as
appropriate. The actual cost of resolving a claim may be substantially different from the amount of the liability
recorded. Differences between the estimated and actual amounts determined upon ultimate resolution, individually
or in the aggregate, are not expected to have a material adverse effect on the Company’s consolidated financial
position but could possibly be material to the Company’s consolidated results of operations or cash flow for any one
period.
Income Taxes
From time to time, the Company engages in transactions in which the tax consequences may be subject to
uncertainty. Examples of such transactions include business acquisitions and dispositions, including dispositions
designed to be tax free, issues related to consideration paid or received, and certain financing transactions.
Significant judgment is required in assessing and estimating the tax consequences of these transactions. The
Company prepares and files tax returns based on interpretation of tax laws and regulations. In the normal course of
business, the Company’s tax returns are subject to examination by various taxing authorities. Such examinations
may result in future tax and interest assessments by these taxing authorities. In determining the Company’s tax
provision for financial reporting purposes, the Company establishes a reserve for uncertain tax positions unless such
positions are determined to be “more likely than not” of being sustained upon examination, based on their technical
merits. That is, for financial reporting purposes, the Company only recognizes tax benefits taken on the tax return
that it believes are “more likely than not” of being sustained. There is considerable judgment involved in
determining whether positions taken on the tax return are “more likely than not” of being sustained.
The Company adjusts its tax reserve estimates periodically because of ongoing examinations by, and
settlements with, the various taxing authorities, as well as changes in tax laws, regulations and interpretations.
The consolidated tax provision of any given year includes adjustments to prior year income tax accruals that are
considered appropriate and any related estimated interest. The Company’s policy is to recognize, when applicable,
interest and penalties on uncertain tax positions as part of income tax expense. Refer to Note 11 to the
accompanying consolidated financial statements for further details.
Programming Agreements
The Company exercises significant judgment in estimating programming expense associated with certain
video programming contracts. The Company’s policy is to record video programming costs based on the
Company’s contractual agreements with its programming vendors, which are generally multi-year agreements
that provide for the Company to make payments to the programming vendors at agreed upon market rates based on
the number of subscribers to which the Company provides the programming service. If a programming contract
expires prior to the parties’ entry into a new agreement and the Company continues to distribute the service,
management estimates the programming costs during the period there is no contract in place. In doing so,
management considers the previous contractual rates, inflation and the status of the negotiations in determining its
estimates. When the programming contract terms are finalized, an adjustment to programming expense is recorded,
if necessary, to reflect the terms of the new contract. Management also makes estimates in the recognition of
programming expense related to other items, such as the accounting for free periods and credits from service
interruptions, as well as the allocation of consideration exchanged between the parties in multiple-element
transactions. Additionally, judgments are also required by management when the Company purchases multiple
services from the same programming vendor. In these scenarios, the total consideration provided to the
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)