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Time Warner Cable
2009 Annual Report

Table of contents

  • Page 1
    Time Warner Cable 2009 Annual Report

  • Page 2
    States Served By Time Warner Cable 14.6 Million Customer Relationships in 28 States Digital Video Digital Phone High Speed Online 47,000 Employees Commercial Services NYSE: TWC Media Sales Information as of 12/31/09 Front cover, top photo: Doug, Service Tech and Lindsay, Technical ...

  • Page 3
    Kate, Anchor OUR MISSION Connect people and businesses with information, entertainment and each other. Give customers control in ways that are simple and easy. T I M E WA R N ER C A B L E 2 0 0 9 A N N UA L R EP O R T 1

  • Page 4
    Dear Time Warner Cable Stockholders, Employees and Communities: For Time Warner Cable, 2009 was an eventful year. In March, we completed our spinoff from Time Warner Inc., becoming an independent, stand-alone company with no controlling shareholder. Like most companies, we faced the challenges of ...

  • Page 5
    ... we operate in a great industry and that Time Warner Cable is a fundamentally strong company. • Carefully managed our operating and capital expenses and generated free cash flow of over $1.9 billion • Grew primary service units (PSUs), which are total video, high-speed data and digital phone...

  • Page 6
    ... connect people and businesses with information, entertainment and each other. We give customers control in ways that are simple and easy. I'm proud of our employees' work to make our mission more than just words. In 2009, they began implementing numerous changes, new ideas and product enhancements...

  • Page 7
    ... Coordinator Stephanie, Director of Marketing LIVING OUR VALUES Time Warner Cable's 47,000 employees connect with our customers, communities and each other by living our values: Excellence, Teamwork, Initiative, Innovation, Integrity, Inclusion and Community. Our workforce is driven by people with...

  • Page 8
    ... customers new and enhanced services that make it simpler and easier for them to receive and share information across the globe. From access to hundreds of cable networks, community programming and enhanced viewing options like high-definition channels and On Demand content, to a range of Internet...

  • Page 9
    Deana, Communications Assistant Stephen, Headend Engineering Manager Claude, Network Engineer Shaunet, Financial Analyst Dave, Headend Engineering Supervisor George, Producer/Director Tim, Lead Tech Michael, Construction Tech Jody, Network Support Tech

  • Page 10
    ... A MILLION MINDS Community service is in our DNA at Time Warner Cable. We have a long history of providing support in the form of cash and in-kind donations, employee volunteers and promotion for a wide range of important community causes and organizations. In 2009, after an extensive review of our...

  • Page 11
    ... (based upon the closing price of such shares on the New York Stock Exchange on June 30, 2009) was approximately $11.2 billion. DOCUMENTS INCORPORATED BY REFERENCE Description of document Portions of the definitive Proxy Statement to be used in connection with the registrant's 2010 Annual Meeting of...

  • Page 12

  • Page 13
    ... and local advertising customers. In February 2007, TWC became a public company subject to the requirements of the Securities Exchange Act of 1934, as amended (the "Securities Exchange Act"). On March 1, 2007, TWC's Class A common stock began trading on the New York Stock Exchange. On March 12, 2009...

  • Page 14
    ...-Demand, high-definition ("HD") and digital video recorder ("DVR") services. As of December 31, 2009, TWC had approximately 12.7 million residential video subscribers. Programming tiers. TWC currently offers three main levels or "tiers" of video programming-Basic Service Tier ("BST"), Expanded Basic...

  • Page 15
    ... to content and media from local, national and international providers and topic-specific channels, including entertainment, dating, games, news, sports, travel, music, movie listings, shopping, ticketing and coupon sites. In addition to Road Runner High-Speed Online, most of TWC's cable systems...

  • Page 16
    ... Internet Access or Dedicated Internet Access certain additional services, including managed storage, web hosting and personal and managed data security. In addition, TWC expects to begin offering its wireless mobile broadband service, Time Warner Cable Business Class Mobile, to commercial customers...

  • Page 17
    ... sales, online at www.timewarnercable.com and through third-party web partners, and in TWC and third-party retail stores. In addition, TWC uses customer care channels and inbound call centers to sell additional services to existing customers, as well as new services to potential customers. Customer...

  • Page 18
    ...VOD, channels delivered via SDV technology and TWC's interactive program guide. In order to receive TWC's two-way video services, customers generally must have a TWC-provided digital set-top box. CableLabs, a nonprofit research and development consortium founded by members of the cable industry, has...

  • Page 19
    ... such Internet-delivered content on television sets. TWC also competes with online order services with mail delivery and video stores. "Online" competition. TWC's high-speed data service faces competition from a variety of companies that offer other forms of online services, including low cost dial...

  • Page 20
    ... enacted in California, Kansas, Missouri, North Carolina, Ohio, South Carolina, Texas and Wisconsin, which include some of the Company's largest operating areas. See "-Regulatory Matters- Video Services-Franchising" and "Risk Factors-Risks Related to Government Regulation." Employees As of December...

  • Page 21
    ... and public access, educational and government channels. This regulation also applies to the installation, sale and lease of equipment used by subscribers to receive basic service, such as set-top boxes and remote control units. In the majority of its localities, TWC is no longer subject to rate...

  • Page 22
    ... be used to receive digital video services. Currently, many cable subscribers rent from their cable operator a set-top box that performs both signalreception functions and conditional-access security functions. The lease rates cable operators charge for this equipment are subject to rate regulation...

  • Page 23
    ... and digital services; closed captioning requirements for the hearing impaired; commercial restrictions on children's programming; recordkeeping and public file access requirements; and technical rules relating to operation of the cable network. Franchising. Cable operators generally operate their...

  • Page 24
    ... in "Risk Factors-Risks Related to Government Regulation-'Net neutrality' legislation or regulation could limit TWC's ability to operate its high-speed data business profitably and to manage its broadband facilities efficiently to respond to growing bandwidth usage by TWC's high-speed data customers...

  • Page 25
    ...result in a number of new rulemaking proceedings. TWC is unable to predict the impact of such proceedings on TWC's business. Voice Services TWC currently offers residential and commercial voice services using VoIP technology. Traditional providers of circuit-switched telephone services generally are...

  • Page 26
    ... discuss cooperation with respect to new product development. TWC receives a fee for providing the A/N Subsidiary with high-speed data services and the management functions noted above. Restrictions on transfer-TW Partners. Each TW Partner is generally permitted to directly or indirectly dispose of...

  • Page 27
    ... mobile broadband services to wholesale and retail customers. Clearwire's Class A Common Stock is listed for trading on the NASDAQ Global Select Market. In November 2008, TWC, Intel Corporation ("Intel"), Google Inc., Comcast and Bright House Networks, LLC (collectively, the "Clearwire Investors...

  • Page 28
    ... the home as well. TWC launched Road Runner Mobile, a wireless mobile broadband service, in several cities during the fourth quarter of 2009, and it expects to continue to roll out the service in additional cities during 2010. TWC utilizes Clearwire's mobile broadband network to provide the service...

  • Page 29
    ... efforts to impose so-called "net neutrality" requirements on cable operators. See "-Risks Related to Government Regulation-'Net neutrality' legislation or regulation could limit TWC's ability to operate its high-speed data business profitably and to manage its broadband facilities efficiently to...

  • Page 30
    ... of data or other malfeasance, as well as outages, natural disasters, accidental releases of information or similar events, may disrupt TWC's business. Because network and information systems and other technologies are critical to TWC's operating activities, network or information system shutdowns...

  • Page 31
    ...attachment costs. Under federal law, TWC has the right to attach cables carrying video and other services to telephone and similar poles of investor-owned utilities at regulated rates. However, because these cables may carry services other than video services, such as high-speed data services or new...

  • Page 32
    ... local levels. In addition, the federal government has extended some regulation to high-speed data services and is considering additional regulations. TWC is also subject to regulation of its video services relating to rates, equipment, technologies, programming, levels and types of services, taxes...

  • Page 33
    ...'s video services or regulate other services, such as high-speed data and voice services, which could impede TWC's ability to raise rates, or require rate reductions, and therefore could cause TWC's business, financial results or financial condition to suffer. TWC may have to pay fees in connection...

  • Page 34
    ...'s high-speed data network. As of December 31, 2009, TWC leased and owned real property housing national operations centers and regional data centers used in its high-speed data services business in Herndon, VA; Raleigh, NC; Syracuse, NY; Austin, TX; Kansas City, MO; Orange County, CA; New York, NY...

  • Page 35
    ... v. Time Warner Entertainment Company, L.P. and Time Warner Cable filed a purported nationwide class action in U.S. District Court for the Eastern District of New York claiming that TWE sold its subscribers' personally identifiable information and failed to inform subscribers of their privacy rights...

  • Page 36
    ... of Texas alleging that the Company and a number of other cable operators infringed several patents purportedly related to a variety of technologies, including high-speed data and IP-based telephony services. In addition, on September 13, 2006, Rembrandt filed a complaint in the U.S. District Court...

  • Page 37
    ... Vice President, General Counsel and Secretary Executive Vice President and Chief Government Affairs Officer Senior Executive Vice President and Chief Financial Officer Executive Vice President and President, Time Warner Cable Ventures Executive Vice President and Chief Strategy Officer Set...

  • Page 38
    ... Company's Executive Vice President and Chief Strategy Officer since March 2008. Prior to that, he served as the Company's Executive Vice President of Product Management from 2005, after serving as Senior Vice President of Strategic Planning from 2004. Mr. Stern joined the Company from Time Warner...

  • Page 39
    ...per share after giving effect to the 1-for-3 reverse stock split, aggregating $10.856 billion) to holders of record on March 11, 2009 of TWC's outstanding Class A common stock and Class B common stock. On January 28, 2010, TWC announced that it would begin paying a regular quarterly cash dividend of...

  • Page 40
    ..., Executive Officers and Corporate Governance; Executive Compensation; Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters; Certain Relationships and Related Transactions and Director Independence; Principal Accountant Fees and Services. Information called...

  • Page 41
    ... connection with the payment of the Special Dividend and the TWC Reverse Stock Split, adjustments were made to the number of underlying shares and exercise prices of outstanding TWC stock options to maintain the fair value of those awards. PART IV Item 15. Exhibits and Financial Statements Schedules...

  • Page 42
    .... TIME WARNER CABLE INC. By: /s/ GLENN A. BRITT Name: Glenn A. Britt Title: Chairman, President and Chief Executive Officer Dated: February 19, 2010 Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, this report has been signed below by the following persons...

  • Page 43
    ... of Cash Flows ...Consolidated Statement of Equity ...Notes to Consolidated Financial Statements ...Management's Report on Internal Control Over Financial Reporting ...Reports of Independent Registered Public Accounting Firm ...Selected Financial Information ...Quarterly Financial Information...

  • Page 44
    ... statements and provides additional information on Time Warner Cable Inc.'s (together with its subsidiaries, "TWC" or the "Company") business, current developments, financial condition, cash flows and results of operations. MD&A is organized as follows: • Overview. This section provides a general...

  • Page 45
    ... offers high-speed data services to business customers, as well as networking and transport services, and had 295,000 commercial high-speed data subscribers as of December 31, 2009. During the fourth quarter of 2009, TWC launched Road Runner MobileTM, a wireless mobile broadband service, in several...

  • Page 46
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) March 11, 2009 of TWC's outstanding Class A common stock and Class B common stock (the "Special Dividend"). Following the payment of the Special Dividend, each outstanding share ...

  • Page 47
    ... Company's delivery systems: video programming costs; high-speed data connectivity costs and certain high-speed data customer care support service costs; voice network costs; other service-related expenses, including non-administrative labor; franchise fees; and other related costs. Selling, general...

  • Page 48
    ... tax benefit (provision), other income (expense), net, and interest expense, net). Free Cash Flow is used as an important indicator of the Company's liquidity after the payment of cash taxes, interest and other cash items, including its ability to reduce net debt, pay dividends and make strategic...

  • Page 49
    ... whether a high-speed data or Digital Phone subscriber is categorized as commercial or residential is generally based upon the type of service provided to that subscriber. For example, if TWC provides a commercial service, the subscriber is classified as commercial. During 2009, the Company recorded...

  • Page 50
    ... Advertising revenues from national, regional and local businesses. Costs of revenues. The major components of costs of revenues were as follows (in millions): Year Ended December 31, 2009 2008 % Change Video programming ...Employee ...High-speed data...Voice ...Video franchise fees ...Other direct...

  • Page 51
    ... on the Company's 2009 and 2008 impairment testing of cable franchise rights. Loss on sale of cable systems. During 2008, the Company recorded a loss of $58 million as a result of the sale of certain non-core cable systems, which closed in December 2008. Reconciliation of Operating Income (Loss...

  • Page 52
    ..., in 2009, Operating Income was impacted by restructuring costs and Separation-related "make-up" equity award costs. In 2008, Operating Loss was impacted by the impairment of cable franchise rights, the loss on sale of cable systems and restructuring costs. Excluding these items, Operating Income...

  • Page 53
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Other expense, net. Other expense, net, detail is shown in the table below (in millions): Year Ended December 31, 2009 2008 Direct transaction costs related to the Separation ...

  • Page 54
    ... circuit-switched telephone service, as applicable) subscribers. Digital video subscriber numbers reflect billable video subscribers who receive any level of video service as digital signals. Revenue generating unit numbers represent the total of all video, digital video, high-speed data and...

  • Page 55
    ... continued growth of digital video, high-speed data and Digital Phone services, as well as salary increases. High-speed data costs consist of the direct costs associated with the delivery of high-speed data services, including network connectivity costs. High-speed data costs decreased primarily due...

  • Page 56
    ...carrying value of its cable franchise rights as a result of its annual impairment testing of goodwill and indefinite-lived intangible assets. Loss on sale of cable systems. During 2008, the Company recorded a loss of $58 million as a result of the sale of certain non-core cable systems, which closed...

  • Page 57
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Depreciation expense. The increase in depreciation expense was primarily associated with purchases of customer premise equipment, scalable infrastructure and line extensions ...

  • Page 58
    ... Special Dividend ...Cash provided by operating activities ...Capital expenditures ...All other, net ...$ 12,279 .. 10,856 .. (5,179) .. 3,231 .. 96 Balance as of December 31, 2009 ...$ 21,283 In 2008, TWC filed a shelf registration statement on Form S-3 with the Securities and Exchange Commission...

  • Page 59
    ... of cable franchise rights ...Noncash equity-based compensation ...Noncash loss on sale of cable systems ...Net interest payments(a) ...Pension plan contributions(b) ...Net income taxes paid(c) ...Net merger-related and restructuring accruals (payments) ...Net cash flows from discontinued operations...

  • Page 60
    ... customer's home or business for the purpose of receiving/sending video, high-speed data and/or voice signals. Such equipment 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...

  • Page 61
    ... commercial paper program, the repayment of TWE's matured long-term debt (discussed above), and debt issuance costs relating to the 2008 Bond Offerings and the 2008 Bridge Facility. Cash used by financing activities for 2007 included net repayments under the Company's debt obligations and payments...

  • Page 62
    ... secure the future rights to various assets and services to be used in the normal course of operations. For example, the Company is contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules...

  • Page 63
    ...There is generally no obligation to purchase these services if the Company is not providing video services. Programming fees represent a significant portion of its costs of revenues. Future fees under such contracts are based on numerous variables, including number and type of customers. The amounts...

  • Page 64
    ... companies operate. As of December 31, 2009, TWC had $975 million of investments, which included $691 million related to SpectrumCo LLC and $207 million related to Clearwire Communications LLC. Prior to 2007, some of TWC's employees were granted options to purchase shares of Time Warner common stock...

  • Page 65
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) (expense), net, in the consolidated statement of operations for the change in the fair value of the equity award reimbursement obligation after the Separation. CRITICAL ACCOUNTING...

  • Page 66
    ... based on assumed growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. In addition, the market-based approach utilizes comparable company public trading values, research analyst estimates and...

  • Page 67
    ..., 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...

  • Page 68
    ..., the Company operates in a highly competitive, consumer and technology-driven and rapidly changing business. The Company's business is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological...

  • Page 69
    ... tax liabilities, net ...Other liabilities ...Commitments and contingencies (Note 17) TWC shareholders' equity: Class A common stock, $0.01 par value, 0 shares and 300.7 million shares issued and outstanding as of December 31, 2009 and 2008, respectively ...Class B common stock, $0.01 par value...

  • Page 70
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF OPERATIONS 2009 Year Ended December 31, 2008 (in millions, except per share data) 2007 Revenues: Subscription: Video ...High-speed data ...Voice ...Total subscription ...Advertising ...Total revenues ...Costs and expenses: Costs of revenues(a) ......

  • Page 71
    ..., net of cash acquired and distributions received . . Capital expenditures ...Proceeds from asset sales ...Cash used by investing activities ...FINANCING ACTIVITIES Borrowings (repayments), net(a) ...Borrowings(b) ...Repayments(b) ...Debt issuance costs ...Payment of special cash dividend...

  • Page 72
    ..., net of $2 million income tax provision ...Comprehensive income ...Equity-based compensation ...Redemption of Historic TW's interest in TW NY ...Special cash dividend ($30.81 per common share)...Retained distribution related to unvested restricted stock units ...Other changes ...BALANCE AS...

  • Page 73
    ... of Business Time Warner Cable Inc. (together with its subsidiaries, "TWC" or the "Company") is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas - New York State (including New York City), the Carolinas, Ohio...

  • Page 74
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 2. RECENT ACCOUNTING STANDARDS Accounting Standards Adopted in 2009 Fair Value Measurements In September 2006, the FASB issued authoritative guidance that establishes the authoritative definition of fair value, sets out a ...

  • Page 75
    ... investments that are readily convertible into cash and have original maturities of three months or less. Cash equivalents are carried at cost, which approximates fair value. Accounts Receivable Accounts receivable are recorded at net realizable value. The Company maintains an allowance for doubtful...

  • Page 76
    ... software costs reflect certain costs incurred for the development of internal use software, including costs associated with coding, software configuration, upgrades and enhancements. These costs, net of accumulated depreciation, totaled $514 million and $505 million as of December 31, 2009 and...

  • Page 77
    ... based on assumed growth rates. The discount rates used in the DCF analyses are intended to reflect the risks inherent in the future cash flows of the respective reporting units. In addition, the market-based approach utilizes comparable company public trading values, research analyst estimates and...

  • Page 78
    ... term is used here, multiple-element arrangements can involve Contemporaneous purchases and sales (e.g., the Company sells advertising services to a customer and at the same time purchases programming services); Sales of multiple products and/or services (e.g., the Company sells video, high-speed...

  • Page 79
    ... value with respect to programming; comparison to fees under a prior contract; comparison to fees paid for similar networks; and comparison to advertising rates paid by other advertisers on the Company's systems. Sales of Multiple Products or Services If the Company enters into sales contracts...

  • Page 80
    ... costs of revenues and amounts received from the customer are recorded as Subscription revenues. The amount of such fees recorded on a gross basis related to video and voice services was $544 million in 2009, $524 million in 2008 and $495 million in 2007. Derivative Financial Instruments The Company...

  • Page 81
    ... employees. The risk-free rate assumed in valuing the stock options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by the market price...

  • Page 82
    ...TWC per common share for the effects of stock options and restricted stock units only in the periods in which such effect is dilutive. Set forth below is a reconciliation of basic and diluted net income (loss) attributable to TWC per common share (in millions, except per share data): 2009 Year Ended...

  • Page 83
    ...a result, under applicable securities law regulations and provisions of the U.S. bankruptcy code, TWC became a public company subject to the requirements of the Securities Exchange Act of 1934, as amended. On March 1, 2007, TWC's Class A common stock began trading on the New York Stock Exchange. 71

  • Page 84
    ...statement of cash flows for the year ended December 31, 2008. The closing of the Adelphia/Comcast Transactions, which included the Company's acquisition from Adelphia of certain cable systems in Mooresville, Cornelius, Davidson and unincorporated Mecklenburg County, North Carolina, triggered a right...

  • Page 85
    ... Commercial paper issued under the CP Program is supported by unused committed capacity under the Revolving Credit Facility and ranks pari passu with other unsecured senior indebtedness of TWC, TWE and TW NY. In December 2009, TWC used a portion of the net proceeds from its December 2009 public bond...

  • Page 86
    ... the payment of the Special Dividend, a portion of the net proceeds from the 2008 offerings was used to repay variable-rate debt with lower rates than the interest rates on the debt securities issued in the 2008 offerings, and the remainder was invested in accordance with the Company's investment...

  • Page 87
    ... in connection with the issuance of the 2007 Debt Securities. These capitalized costs are amortized over the term of the related debt instrument and are included as a component of interest expense, net, in the consolidated statement of operations. For the years ended December 31, 2009 and 2008...

  • Page 88
    ...forward contracts") are used to mitigate the risk to the Company from changes in foreign currency exchange rates. The Company currently has exposure to changes in U.S. Dollar - Philippine peso exchange rates related to certain overseas call center operations. As of December 31, 2009, the Company had...

  • Page 89
    ...to manage the risk associated with the volatility of future cash flows denominated in foreign currencies. These contracts, which extend through 2011, specifically relate to forecasted payments denominated in the Philippine peso made to vendors who provide Road RunnerTM customer care support services...

  • Page 90
    .... This liability was adjusted each reporting period to reflect changes in the market price of Time Warner common stock and the number of Time Warner stock options held by TWC employees with an offsetting adjustment to TWC shareholders' equity. Beginning on March 12, 2009, the date of the Separation...

  • Page 91
    ... January 1, 2005 and December 31, 2008, the Company underwent a restructuring plan to simplify its organizational structure and enhance its customer focus, and incurred costs of $80 million related to this restructuring. Through December 31, 2009, payments of $78 million have been made against this...

  • Page 92
    ... discount rates, perpetual growth rates, the amount and timing of expected future cash flows, as well as relevant comparable company earnings multiples for the market-based approach. The Company determined that goodwill and cable franchise rights were not impaired during its annual impairment...

  • Page 93
    ... represented the cable franchise rights in all of the Company's eight units of accounting except for Kansas City) were re-set to their estimated fair values as of December 31, 2008. Management believes that the fair value of its cable franchise rights increased during 2009 across all reporting units...

  • Page 94
    ... in Clearwire was the quoted market value of Clearwire Corporation publicly traded Class A shares at December 31, 2008, which declined significantly from May 2008, the date TWC agreed to make its investment. TKCCP Joint Venture Texas and Kansas City Cable Partners, L.P. ("TKCCP") was a 50-50 joint...

  • Page 95
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The differences between income tax (benefit) provision expected at the U.S. federal statutory income tax rate of 35% and income tax (benefit) provision provided are as set forth below (in millions): 2009 Year Ended ...

  • Page 96
    ...operations in 2009, nor does the Company anticipate a material impact in the future. 13. EQUITY-BASED COMPENSATION TWC Equity Plan The Company has granted options to purchase TWC Common Stock and restricted stock units ("RSUs") to its employees and non-employee directors under the Time Warner Cable...

  • Page 97
    ... and weighted-average remaining contractual term of TWC stock options vested and expected to vest approximate amounts for options outstanding. Total unrecognized compensation cost related to unvested TWC stock options as of December 31, 2009, without taking into account expected forfeitures, is $54...

  • Page 98
    ... service. In connection with the Spin-Off Dividend and the 1-for-3 reverse stock split implemented by Time Warner on March 27, 2009 (the "Time Warner Reverse Stock Split"), and as provided for in Time Warner's equity plans, the number of outstanding Time Warner Equity Awards and the exercise prices...

  • Page 99
    ... 2009 Year Ended December 31, 2008 2007 TWC Equity Plan: Compensation cost recognized: Stock options ...$ Restricted stock units ...Total impact on Operating Income (Loss) ...$ Tax benefit recognized ...$ Time Warner Equity Plans: Compensation cost recognized: Stock options(a) ...$ Restricted stock...

  • Page 100
    ... by Time Warner through October 31, 2008 and by the Company thereafter. Pension benefits are based on formulas that reflect the employees' years of service and compensation during their employment period. TWC uses a December 31 measurement date for its plans. A summary of activity for the...

  • Page 101
    .... As of December 31, 2009, there were no shares of TWC Common Stock or Time Warner common stock held in the TWC Master Trust. The Company's investment policy for the TWC Pension Plans is to maximize the long-term rate of return on plan assets within a prudent level of risk and diversification while...

  • Page 102
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) securities with the objective of preserving asset values, diversifying risk and achieving a target investment return. The Company continuously monitors investment performance, investment allocation policies and the ...

  • Page 103
    ... preferred stocks, which are valued at the closing price reported on the active market on which the individual securities are traded. Corporate debt securities are valued based on observable prices from the new issue market, benchmark quotes, secondary trading and dealer quotes. An option adjusted...

  • Page 104
    ... the cost of TWC's contractual carriage arrangements with a programmer in order to secure other forms of content from the same programmer over time periods consistent with the terms of the respective TWC carriage contract. The amount assumed represented Time Warner's best estimate of the fair value...

  • Page 105
    ...There is generally no obligation to purchase these services if the Company is not providing video services. Programming fees represent a significant portion of its costs of revenues. Future fees under such contracts are based on numerous variables, including number and type of customers. The amounts...

  • Page 106
    ... v. Time Warner Entertainment Company, L.P. and Time Warner Cable filed a purported nationwide class action in U.S. District Court for the Eastern District of New York claiming that TWE sold its subscribers' personally identifiable information and failed to inform subscribers of their privacy rights...

  • Page 107
    ... of Texas alleging that the Company and a number of other cable operators infringed several patents purportedly related to a variety of technologies, including high-speed data and IP-based telephony services. In addition, on September 13, 2006, Rembrandt filed a complaint in the U.S. District Court...

  • Page 108
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 18. ADDITIONAL FINANCIAL INFORMATION Other Cash Flow Information Additional financial information with respect to cash (payments) and receipts is as follows (in millions): 2009 Year Ended December 31, 2008 2007 Cash paid...

  • Page 109
    ... remaining net receivable to $1 million. Other Current Liabilities Other current liabilities consists of (in millions): December 31, 2009 2008 Accrued interest ...Accrued compensation and benefits ...Accrued franchise fees ...Accrued insurance ...Accrued sales and other taxes ...Accrued advertising...

  • Page 110
    TIME WARNER CABLE INC. MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rule 13a-15(f) under the Exchange Act). The Company's ...

  • Page 111
    ... PUBLIC ACCOUNTING FIRM The Board of Directors and Shareholders of Time Warner Cable Inc. We have audited the accompanying consolidated balance sheet of Time Warner Cable Inc. (the "Company") as of December 31, 2009 and 2008, and the related consolidated statements of operations, cash flows...

  • Page 112
    ... and 2008, and the related consolidated statements of operations, cash flows and equity for each of the three years in the period ended December 31, 2009 of Time Warner Cable Inc. and our report dated February 19, 2010 expressed an unqualified opinion thereon. New York, New York February 19, 2010...

  • Page 113
    .... 2009 Year Ended December 31, 2008 2007 2006 (in millions, except per share data) 2005 Selected Operating Statement Information:(a) Revenues: Video ...High-speed data ...Voice ...Advertising ...Total revenues ...Total costs and expenses(b) ...Operating Income (Loss)(b) ...Interest expense, net...

  • Page 114
    ... on cable franchise rights and a $58 million loss on the sale of cable systems. Other income (expense), net, in 2009 includes $28 million of direct transaction costs (e.g., legal and professional fees) related to the Separation, a $21 million loss for the change in the fair value of the Time Warner...

  • Page 115
    ... data) December 31, 2009 Revenues: Subscription ...Advertising ...Total revenues ...Operating Income ...Net income ...Net income attributable to TWC ...Net income attributable to TWC per common share: Basic(a) ...Diluted(a) ...Common stock-high(b) ...Common stock-low(b) ...Special cash dividend...

  • Page 116
    ... Time Warner Cable Inc. (the "Parent Company"). The Guarantor Subsidiaries have fully and unconditionally, jointly and severally, directly or indirectly, guaranteed the debt issued by the Parent Company in its 2007 registered exchange offer and its 2009 and 2008 public offerings. The Parent Company...

  • Page 117
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet December 31, 2009 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Eliminations Consolidated ASSETS Current assets: Cash and ...

  • Page 118
    TIME WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet December 31, 2008 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Eliminations Consolidated ASSETS Current assets: Cash and ...

  • Page 119
    ... WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations Year Ended December 31, 2009 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) TWC Consolidated Eliminations Revenues ...$ Costs...

  • Page 120
    ... costs...Impairment of cable franchise rights ...Loss on sale of cable systems...Total costs and expenses ...Operating Loss ...Equity in pretax loss of consolidated subsidiaries ...Interest income (expense), net ...Other income (expense), net ...Loss before income taxes ...Income tax benefit ...Net...

  • Page 121
    ... WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations Year Ended December 31, 2007 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) Eliminations TWC Consolidated Revenues ...$ Costs...

  • Page 122
    ... from asset sales ...Cash provided (used) by investing activities ...FINANCING ACTIVITIES Borrowings (repayments), net ...Borrowings ...Repayments ...Debt issuance costs ...Net change in investments in and amounts due to and from consolidated subsidiaries ...Payment of special cash dividend ...Other...

  • Page 123
    ... WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows Year Ended December 31, 2008 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) Eliminations TWC Consolidated Cash provided (used...

  • Page 124
    ... WARNER CABLE INC. SUPPLEMENTARY INFORMATION CONDENSED CONSOLIDATING FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows Year Ended December 31, 2007 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries (in millions) Eliminations TWC Consolidated Cash provided (used...

  • Page 125
    TIME WARNER CABLE INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS Balance at Beginning of Period Additions Charged to Costs and Expenses Deductions (in millions) Balance at End of Period Year Ended December 31, 2009: Allowance for doubtful accounts ...Year Ended December 31, 2008: Allowance ...

  • Page 126
    ... 2007, the first day the Company's Class A common stock traded on the New York Stock Exchange, through December 31, 2009. On March 12, 2009, the Company paid a special cash dividend of $10.27 per share ($30.81 per share after giving effect to the 1-for-3 reverse stock split) to holders of record on...

  • Page 127
    ... SEC, Quarterly Reports on Form 10-Q, and Proxy Statement, may be ordered, viewed or downloaded on the company's website: www.timewarnercable.com/investors. Alternatively, copies may be ordered free of charge by calling toll free: 877-4INFO-TWC. Media and Press Communications Time Warner Cable Inc...

  • Page 128
    ... Control Warehouse Donald, Service Tech Time Warner Cable Inc. 60 Columbus Circle New York, NY 10023 212.364.8200 www.timewarnercable.com NYSE: TWC Leonard, Construction Tech Eric, Lead Editor Lori, HR Manager Chandra, HR Coordinator Graphton, Quality Control Tech Sue, Sales Representative