Time Warner Cable 2009 Annual Report Download - page 30

TWC relies on network and information systems and other technology, and a disruption or failure of such networks, systems or
technology as a result of computer viruses, misappropriation 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 caused by events such as computer hacking, dissemination of computer viruses, worms and other destructive or
disruptive software, denial of service attacks and other malicious activity, as well as power outages, natural disasters, terrorist attacks and
similar events, pose increasing risks. Such an event could have an adverse impact on TWC and its customers, including degradation of
service, service disruption, excessive call volume to call centers and damage to TWC’s plant, equipment and data. Such an event also
could result in large expenditures necessary to repair or replace such networks or information systems or to protect them from similar
events in the future. Significant incidents could result in a disruption of TWC’s operations, customer dissatisfaction, or a loss of
customers or revenues.
Furthermore, TWC’s operating activities could be subject to risks caused by misappropriation, misuse, leakage, falsification and
accidental release or loss of information maintained in TWC’s information technology systems and networks, including customer,
personnel and vendor data. TWC could be exposed to significant costs if such risks were to materialize, and such events could damage the
reputation and credibility of TWC and its business and have a negative impact on its revenues. TWC also could be required to expend
significant capital and other resources to remedy any such security breach. As a result of the increasing awareness concerning the
importance of safeguarding personal information, the potential misuse of such information and legislation that has been adopted or is
being considered regarding the protection, privacy and security of personal information, information-related risks are increasing,
particularly for businesses like TWC’s that handle a large amount of personal customer data.
TWC’s business may be adversely affected if TWC cannot continue to license or enforce the intellectual property rights on which its
business depends.
TWC relies on patent, copyright, trademark and trade secret laws and licenses and other agreements with its employees, customers,
suppliers, and other parties, to establish and maintain its intellectual property rights in technology and the products and services used in
TWC’s operations. However, any of TWC’s intellectual property rights could be challenged or invalidated, or such intellectual property
rights may not be sufficient to permit TWC to take advantage of current industry trends or otherwise to provide competitive advantages,
which could result in costly redesign efforts, discontinuance of certain product or service offerings or other competitive harm. Claims of
intellectual property infringement could require TWC to enter into royalty or licensing agreements on unfavorable terms, incur
substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question, which
could require TWC to change its business practices or offerings and limit its ability to compete effectively. Even claims without merit can
be time-consuming and costly to defend and may divert management’s attention and resources away from TWC’s businesses. Also,
because of the rapid pace of technological change, TWC relies on technologies developed or licensed by third parties, and TWC may not
be able to obtain or continue to obtain licenses from these third parties on reasonable terms, if at all.
TWC is party to agreements with Time Warner and an affiliate of Time Warner governing the use of “Time Warner Cable” and “Road
Runner” that may be terminated if TWC fails to perform its obligations under those agreements or if TWC undergoes a specified
change of control.
TWC licenses “Time Warner Cable” and “Road Runner” from Time Warner and an affiliate of Time Warner, respectively. These
license agreements may be terminated by Time Warner or its affiliate if TWC commits a significant breach of its obligations under such
agreements, undergoes a specified change of control, or materially fails to maintain the quality standards established for the use of these
trademarks and the products and services related to these trademarks.
If Time Warner or its affiliate terminates these brand name license agreements, TWC would lose the goodwill associated with its
brand names and be forced to develop new brand names, which would likely require substantial expenditures, and TWC’s business,
financial results or financial condition could be materially adversely affected.
The accounting treatment of goodwill and other identified intangibles could result in future asset impairments, which would be
recorded as operating losses.
Authoritative guidance issued by the Financial Accounting Standards Board (“FASB”) requires that goodwill, including the
goodwill included in the carrying value of investments accounted for using the equity method of accounting, and other intangible assets
deemed to have indefinite useful lives, such as cable franchise rights, cease to be amortized. The guidance requires that goodwill and
certain intangible assets be tested annually for impairment or earlier upon the occurrence of certain events or substantive changes in
circumstances. If TWC finds that the carrying value of goodwill or a certain intangible asset exceeds its estimated fair value, it will reduce
the carrying value of the goodwill or intangible asset to the estimated fair value, and TWC will recognize an impairment. Any such
impairment is required to be recorded as a noncash operating loss.
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