Time Warner Cable 2009 Annual Report Download - page 79

cable networks, TWC may at the same time negotiate for the sale of advertising to the same cable network. Arrangements, although
negotiated contemporaneously, may be documented in one or more contracts.
The Company’s accounting policy for each transaction negotiated contemporaneously is to record each element of the transaction
based on the respective estimated fair values of the products or services purchased and the products or services sold. The judgments made
in determining fair value in such transactions impact the amount of revenues, expenses and net income recognized over the respective
terms of the transactions, as well as the respective periods in which they are recognized.
In determining the fair value of the respective elements, TWC refers to quoted market prices (where available), historical
transactions or comparable cash transactions. The most frequent transactions of this type that the Company encounters involve funds
received from its vendors. The Company records cash consideration received from a vendor as a reduction in the price of the vendor’s
product unless (i) the consideration is for the reimbursement of a specific, incremental, identifiable cost incurred in which case it would
record the cash consideration received as a reduction in such cost or (ii) the Company is providing an identifiable benefit in exchange for
the consideration in which case it recognizes revenue for this element.
With respect to programming vendor advertising arrangements being negotiated simultaneously with the same cable network, TWC
assesses whether each piece of the arrangements is at fair value. The factors that are considered in determining the individual fair values
of the programming and advertising vary from arrangement to arrangement and include:
• existence of a “most-favored-nation” clause or comparable assurances as to fair market 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 for the sale of multiple products or services, then the Company evaluates whether it has
fair value evidence for each deliverable in the transaction. If the Company has fair value evidence for each deliverable of the transaction,
then it accounts for each deliverable in the transaction separately, based on the relevant revenue recognition accounting policies. If the
Company is unable to determine fair value for one or more undelivered elements of the transaction, the Company recognizes revenue on a
straight-line basis over the term of the agreement. For example, the Company sells video, high-speed data and voice services to
subscribers in a bundled package at a rate lower than if the subscriber purchases each product on an individual basis. Subscription
revenues received from such subscribers are allocated to each product in a pro-rata manner based on the fair value of each of the
respective services.
Purchases of Multiple Products or Services
The Company’s policy for cost recognition in instances where multiple products or services are purchased contemporaneously from
the same counterparty is consistent with the Company’s policy for the sale of multiple deliverables to a customer. Specifically, if the
Company enters into a contract for the purchase of multiple products or services, the Company evaluates whether it has fair value
evidence for each product or service being purchased. If the Company has fair value evidence for each product or service being
purchased, it accounts for each separately, based on the relevant cost recognition accounting policies. If the Company is unable to
determine fair value for one or more of the purchased elements, the Company recognizes the cost of the transaction on a straight-line
basis over the term of the agreement.
This policy also applies in instances where the Company settles a dispute at the same time the Company purchases a product or
service from that same counterparty. For example, the Company may settle a dispute on an existing programming contract with a
programming vendor at the same time that it enters into a new programming contract with the same programming vendor. Because the
Company is negotiating both the settlement of the dispute and a new programming contract, each of the elements is evaluated to ensure it
is accounted for at fair value. The amount allocated to the settlement of the dispute, if determinable and supportable, would be recognized
immediately, whereas the amount allocated to the new programming contract would be accounted for prospectively, consistent with the
accounting for other similar programming agreements. In the event the fair value of the two elements could not be established, the net
amount paid or payable to the vendor would be recognized over the term of the new or amended programming contract.
Gross Versus Net Revenue Recognition
In the normal course of business, the Company acts as or uses an intermediary or agent in executing transactions with third parties.
The accounting issue presented by these arrangements is whether the Company should report revenue based on the gross amount billed to
the ultimate customer or on the net amount received from the customer after commissions and other payments to third parties. To the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)