Time Warner Cable 2009 Annual Report Download - page 96

The Company does not currently anticipate that its existing reserves related to uncertain income tax positions as of December 31,
2009 will significantly increase or decrease during the twelve-month period ending December 31, 2010; however, various events could
cause the Company’s current expectations to change in the future.
In August 2009, the Internal Revenue Service (“IRS”) examination of the Company’s income tax returns for the period 2002 to 2004
was settled, with the exception of an immaterial item subject to an ongoing examination. The resolution of these items did not have a
material impact on the Company’s consolidated financial position or results of operations. In December 2009, the IRS examination for
the period 2005 to 2007 began. The Company does not anticipate that this examination will have a material impact on the Company’s
consolidated financial position or results of operations. In addition, the Company is also subject to ongoing examinations of the
Company’s tax returns by state and local tax authorities for various periods. Activity related to these state and local examinations did not
have a material impact on the Company’s consolidated financial position or results of 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 Inc. 2006 Stock Incentive Plan (the “2006 Plan”).
In connection with the Separation, the 2006 Plan was amended, among other things, to increase the number of shares of TWC
Common Stock authorized for issuance thereunder by 18.0 million shares. As a result, the Company is authorized to issue up to
51.3 million shares of TWC Common Stock under the 2006 Plan (which also reflects certain Separation-related adjustments effected
pursuant to the 2006 Plan and the 1-for-3 TWC Reverse Stock Split).
Stock options granted under the 2006 Plan have exercise prices equal to the fair market value of TWC Common Stock at the date of
grant. Generally, the stock options vest ratably over a four-year vesting period and expire ten years from the date of grant. Certain stock
option awards provide for accelerated vesting upon the grantee’s termination of employment after reaching a specified age and years of
service. In connection with the payment of the Special Dividend and the TWC Reverse Stock Split, adjustments were made to the number
of shares covered by and exercise prices of outstanding TWC stock options to maintain the fair value of those awards. These adjustments
were made pursuant to existing antidilution provisions in the 2006 Plan and related award agreements and, therefore, did not result in the
recognition of incremental compensation expense. Refer to “Separation-related Equity Awards” below for further details.
The RSUs granted under the 2006 Plan generally vest 50% on the third anniversary of the grant date and 50% on the fourth
anniversary. RSUs provide for accelerated vesting upon the grantee’s termination of employment after reaching a specified age and years
of service. Shares of TWC Common Stock will generally be issued at the end of the vesting period of an RSU. RSUs awarded to
non-employee directors are not subject to vesting or forfeiture restrictions and the shares underlying the RSUs will generally be issued in
connection with a director’s termination of service as a director. Holders of RSUs are generally entitled to receive dividend equivalents or
retained distributions related to regular dividends or distributions, respectively, paid by TWC. Refer to “Separation-related Equity
Awards” below for further details.
Upon the exercise of a TWC stock option or the vesting of a TWC RSU award, shares of TWC Common Stock may be issued from
authorized but unissued shares or from treasury stock, if any.
Separation-related Equity Awards
In connection with the Special Dividend, holders of TWC RSUs could elect to receive the retained distribution on their TWC RSUs
related to the Special Dividend (the “Special Dividend retained distribution”) in the form of cash (payable, without interest, upon vesting
of the underlying RSUs) or in the form of additional RSUs (with the same vesting dates as the underlying RSUs). In connection with these
elections and in conjunction with the payment of the Special Dividend, during the first quarter of 2009, the Company (a) granted
1.3 million RSUs and (b) established a liability of $46 million in other liabilities and TWC shareholders’ equity in the consolidated
balance sheet for the Special Dividend retained distribution to be paid in cash, taking into account estimated forfeitures. In addition, in
connection with the 1-for-3 TWC Reverse Stock Split, pursuant to the 2006 Plan and related award agreements, adjustments were made
to reduce the number of outstanding RSUs. Neither the payment of the Special Dividend retained distribution (in cash or additional
RSUs) nor the adjustment to reflect the 1-for-3 TWC Reverse Stock Split results in the recognition of incremental compensation expense.
During the year ended December 31, 2009, the Company made cash payments of $1 million against the Special Dividend retained
distribution liability, which is included in other financing activities in the consolidated statement of cash flows. Of the remaining
$45 million liability, $5 million is classified as a current liability in other current liabilities, with the remaining $40 million classified as a
noncurrent liability in other liabilities in the consolidated balance sheet as of December 31, 2009.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)