Time Warner Cable 2010 Annual Report Download - page 59

OIBDA. OIBDA increased principally as a result of revenue growth, partially offset by higher costs of revenues and
selling, general and administrative expenses, as discussed above.
Depreciation. The increase in depreciation expense was primarily associated with continued investments in
customer premise equipment, scalable infrastructure and line extensions occurring during or subsequent to 2009. As
discussed above, depreciation expense in 2010 benefited from a fourth-quarter 2010 reclassification of approximately
$20 million.
Amortization. The decrease in amortization expense in 2010 was primarily due to approximately $880 million of
customer relationships acquired in the July 31, 2006 transactions with Adelphia Communications Corporation and
Comcast Corporation (the “Adelphia/Comcast Transactions”) that were fully amortized as of July 31, 2010. Amortization
expense in 2009 included a benefit of approximately $13 million recorded to reduce excess amortization recorded in prior
years.
As of December 31, 2010, approximately $70 million of customer relationships that the Company acquired as a
result of the 2007 dissolution of Texas and Kansas City Cable Partners, L.P. (“TKCCP”) were fully amortized. Based on
the remaining carrying value of intangible assets subject to amortization as of December 31, 2010, amortization expense
is expected to be approximately $24 million in 2011.
Operating Income. Operating Income increased primarily due to the increase in OIBDA and the decrease in
amortization expense, partially offset by the increase in depreciation expense, as discussed above.
Interest expense, net. Interest expense, net, increased primarily due to higher average debt outstanding during 2010
as compared to 2009. Interest expense, net, for 2009 included $13 million of debt issuance costs primarily related to
upfront loan fees on a 364-day senior unsecured term loan facility entered into in 2008 in connection with the Separation
(the “2008 Bridge Facility”), which were recognized as expense when the facility was repaid and terminated following the
Company’s public debt issuance in March 2009.
Other expense, net. Other expense, net, detail is shown in the table below (in millions):
2010 2009
Year Ended December 31,
Direct transaction costs related to the Separation
(a)
................................ $ — $ (28)
Loss from equity investments, net
(b)
........................................... (110) (49)
Investment in The Reserve Fund’s Primary Fund ................................. 1 (5)
Other investment gains
(c)
................................................... — 15
Gain (loss) on equity award reimbursement obligation to Time Warner
(d)
............... 5 (21)
Other ................................................................. 5 2
Other expense, net ....................................................... $ (99) $ (86)
(a)
Amount primarily consists of legal and professional fees.
(b)
The increase in loss from equity investments, net, in 2010 was primarily due to an increase in losses incurred by Clearwire Communications LLC.
(c)
2009 amount includes a $12 million gain due to a post-closing adjustment associated with the 2007 dissolution of TKCCP.
(d)
See Note 11 to the accompanying consolidated financial statements for a discussion of the Company’s accounting for its equity award
reimbursement obligation to Time Warner.
Income tax provision. In 2010 and 2009, the Company recorded income tax provisions of $883 million and
$820 million, respectively. The effective tax rates were 40.2% and 42.9% for 2010 and 2009, respectively.
The income tax provision and the effective tax rate for 2009 were impacted by the passage of the California state
budget during the first quarter of 2009 that, in part, changed the methodology of income tax apportionment in California.
This tax law change resulted in an increase in state deferred tax liabilities and a corresponding noncash tax provision of
$38 million, which was recorded in the first quarter of 2009. On October 19, 2010, legislation was enacted in California
that reversed the changes in methodology of California income tax apportionment included in the 2009 California state
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TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)