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2011 TIME WARNER CABLE ANNUAL REPORT

Table of contents

  • Page 1
    2011 T I M E WA R N E R C A B L E A N N UA L R E P O RT

  • Page 2
    OUR MISSION We connect people and businesses with information, entertainment and each other. We give customers control in ways that are simple and easy. OUR VALUES Excellence Teamwork Initiative Innovation Integrity Inclusion Community

  • Page 3
    ... to report that Time Warner Cable had a good year in 2011, despite intense competition and a continued weak economy. We rolled out more than two dozen new products and features, enhanced our existing offerings and marketing capabilities, and took steps to expand our footprint and make our company...

  • Page 4
    2011 HIGHLIGHTS Last year, we: 9 Introduced new products and features to give our customers more choices and control. We were the first cable company to launch an app for the iPad® (TWC TV™) that featured live viewing of cable channels at home. We continued to improve the app throughout the year...

  • Page 5
    ...) featuring Los Angeles Lakers® games and content, Time Warner Cable IntelligentHome™ (our advanced home security and monitoring service), and the expansion of our WiFi capabilities • Capturing synergies related to our recent acquisitions • Making prudent capital investments in our business...

  • Page 6
    www.twc.com/investors

  • Page 7
    UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2011 Commission file number 001-33335 TIME WARNER CABLE INC. (Exact name of registrant as ...

  • Page 8

  • Page 9
    ...Business. Overview Time Warner Cable Inc. (together with its subsidiaries, "TWC"® or the "Company") is among the largest providers of video, high-speed data and voice services in the U.S., with technologically advanced, well-clustered cable systems located mainly in five geographic areas - New York...

  • Page 10
    ... to give customers access to any content that it offers, any time they want it, and, increasingly, anywhere they are and on any device they choose. As of December 31, 2011, TWC served approximately 11.9 million residential video subscribers. Any content. TWC offers various tiers and packages of...

  • Page 11
    ...and cable networks, music videos, local programming and other content. TWC's VOD service also offers a wide selection of featured movies and special events on a pay-per-view basis. In addition, premium channel (e.g., HBO) subscribers generally have access to the premium channel's VOD content without...

  • Page 12
    ...block unwanted calls. Customers taking TWC's voicemail service may also use VoiceZone to listen to, download and email their messages at no additional charge. Business Services TWC offers high-speed data, networking and transport, voice and video services to businesses marketed under the Time Warner...

  • Page 13
    ... network or LAN within and between metropolitan areas. In addition, TWC offers cell tower backhaul services to wireless telephone providers, and transport to Internet service providers and competitive carriers on a wholesale basis. Voice Services TWC offers its voice services, Business Class Phone...

  • Page 14
    ....8% of Sterling Entertainment Enterprises, LLC (doing business as SportsNet New York), a New York City-based regional sports network that carries New York Mets® baseball games as well as other regional sports programming. Marketing and Sales TWC uses the brand name Time Warner Cable and its graphic...

  • Page 15
    ... to receive digital video programming, TWC's video subscribers must have either a TWC-provided digital set-top box or a "digital cable-ready" television or similar device equipped with a conditional-access security card ("CableCARDTM"). In order to utilize TWC's two-way video services (which include...

  • Page 16
    ... local telephone companies. TWC's residential video, high-speed data and voice services face competition from the video, digital subscriber line ("DSL"), wireless broadband and wireline and wireless phone offerings of AT&T and Verizon. TWC estimates that AT&T and Verizon have upgraded their networks...

  • Page 17
    ...video stores. "Online" competition. TWC's residential high-speed data service faces competition from a variety of companies that offer other forms of online services, including low cost dial-up services over telephone lines and wireless broadband services over a variety of types of networks. Digital...

  • Page 18
    ... "Communications Act"), and the regulations and policies of the FCC affect significant aspects of TWC's cable system operations, including video subscriber rates; carriage of broadcast television signals and cable programming, as well as the way TWC sells its program packages to subscribers; the use...

  • Page 19
    ... access by third parties, which limits the amount of capacity TWC has available for other programming. The FCC regulates various aspects of such third-party commercial use of channel capacity on TWC's cable systems, including the rates and some terms and conditions of the commercial use. These rules...

  • Page 20
    ... Related to Government Regulation-TWC may encounter substantially increased pole attachment costs." Set-top box regulation. Certain regulatory requirements are also applicable to set-top boxes and other equipment that can be used to receive digital video services. Currently, many cable subscribers...

  • Page 21
    ... an Order to address CableCARD issues. The new rules included requirements that cable operators provide reasonable access to switched digital programming for retail one-way devices through a technology of the operator's choice, provide credits to customers who use their own retail set-top boxes...

  • Page 22
    ... network on the basis of affiliation. MASN appealed the FCC's decision to the U.S. Court of Appeals for the Fourth Circuit, where the case is currently pending. Herring Broadcasting, Inc., which does business as WealthTV, also filed a program carriage complaint against TWC and other cable operators...

  • Page 23
    ...-of-sale and publically available thereafter to both consumers and providers of Internet content, services, applications and devices via their website or some other method. In addition, subject to "reasonable network management," fixed broadband Internet access providers are prohibited from blocking...

  • Page 24
    ..., the Wisconsin Public Utility Commission ruled that TWC's Digital Phone service is subject to traditional, circuit-switched telephone regulation, and in October 2010, the Maine Public Utilities Commission ruled that TWC's voice services should be regulated in Maine as a telephone service and that...

  • Page 25
    ...for analog and digital services; closed captioning and video description 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. Operating Partnerships...

  • Page 26
    ..., including oversight of programming and various engineeringrelated matters. TWE and A/N also agreed to periodically 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...

  • Page 27
    ... Clearwire Corporation ("Clearwire"), a publicly traded company that was formed by the combination of the respective wireless broadband businesses of Sprint and Clearwire Communications. Clearwire's Class A Common Stock is listed for trading on the NASDAQ Global Select Market. In connection with TWC...

  • Page 28
    ... "over-the-top" phone service and other communication alternatives, including texting, social networking and email. TWC also competes across each of its business high-speed data, networking and voice services with ILECs and CLECs. TWC's cell tower backhaul service faces competition from ILECs and...

  • Page 29
    ...-speed data service. Examples of such services include the delivery of video via streaming technology and by download, peer-to-peer file sharing services and gaming services. TWC will need flexibility to develop pricing and business models that will allow it to respond to such changing consumer uses...

  • Page 30
    ... 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...

  • Page 31
    ...has extended regulation to high-speed data services. TWC is also subject to regulation of its video services relating to rates, equipment, technologies, programming, levels and types of services, taxes and other charges. Modification to existing regulations or the imposition of new regulations could...

  • Page 32
    ... providers of Internet content, services, applications and devices on both the website and at the point-of-sale. In addition, subject to "reasonable network management," fixed broadband Internet access providers, including TWC, are prohibited from blocking lawful content, applications, services and...

  • Page 33
    ... of Time Warner of its 12.43% non-voting common stock interest in TW NY to TWC in exchange for 80 million newly issued shares of TWC's Class A common stock, TWC's payment of a special cash dividend to holders TWC's outstanding Class A and Class B common stock, the conversion of each share of TWC...

  • Page 34
    ... Company's tax positions could adversely affect the Company's results of operations and financial condition. TWC operates cable systems in locations throughout the U.S. and, as a result, it is subject to the tax laws and regulations of the U.S. federal, state and local governments. From time to time...

  • Page 35
    ... of TWC's high-speed data network. As of December 31, 2011, TWC leased and owned real property housing national operations centers and regional data centers used in its high-speed data services business in Herndon, Virginia; Raleigh, North Carolina; Syracuse, New York; Austin, Texas; Kansas City...

  • Page 36
    ... Noia, et al. v. Time Warner Cable Inc., filed an amended complaint in a purported class action in U.S. District Court for the Southern District of New York alleging that the Company uses a throttling technique which intentionally delays and/or blocks a user's high-speed data service. Plaintiffs are...

  • Page 37
    ... the Eastern District 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...

  • Page 38
    ... Chief Government Relations Officer President and Chief Operating Officer Executive Vice President, Human Resources Executive Vice President and President, Time Warner Cable Ventures Executive Vice President and Chief Strategy Officer Executive Vice President and Chief Programming Officer Set forth...

  • Page 39
    ..., General Counsel and Secretary of the Time Warner Cable division of TWE from 1996 and in other positions in the law department prior to that. Gail G. MacKinnon has served as the Company's Executive Vice President and Chief Government Relations Officer since August 2008. Prior to that, she served...

  • Page 40
    ... Securities. The principal market for the Company's common stock, par value $0.01 per share (the "TWC Common Stock"), is the New York Stock Exchange. For quarterly price and dividend information for TWC Common Stock for the two years ended December 31, 2011, see "Quarterly Financial Information...

  • Page 41
    ... registered public accounting firm thereon set forth at pages 124 and 126 are incorporated herein by reference. Changes in Internal Control Over Financial Reporting There have not been any changes in TWC's internal control over financial reporting during the quarter ended December 31, 2011 that...

  • Page 42
    ...) the information regarding certain Company equity compensation plans called for by Item 201(d) of Regulation S-K is set forth below. The Company has adopted a Code of Ethics for its Senior Executive and Senior Financial Officers. A copy of the Code is publicly available on the Company's website at...

  • Page 43
    ...list of consolidated financial statements set forth in the accompanying Index to Consolidated Financial Statements and Other Financial Information at page 37 herein is incorporated herein by reference. Such consolidated financial statements are filed as part of this Annual Report. (ii) All financial...

  • Page 44
    ..., thereunto duly authorized. TIME WARNER CABLE INC. By: /S/ GLENN A. BRITT Name: Glenn A. Britt Title: Chairman and Chief Executive Officer Dated: February 17, 2012 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...

  • Page 45
    ... 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 ... 38...

  • Page 46
    ...operations and financial condition ("MD&A") is a supplement to the accompanying consolidated financial 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...

  • Page 47
    ... a standalone basis. TWC's residential video service faces competition from direct broadcast satellite services, and increasingly from companies that deliver content to consumers over the Internet. TWC's residential high-speed data and voice services face competition from wireless Internet and voice...

  • Page 48
    ... OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Consistent with the Company's overall balance sheet management strategy, during 2011, TWC paid quarterly cash dividends to TWC stockholders totaling $642 million, or $1.92 per share of TWC common stock. On January 25, 2012, the Company's Board...

  • Page 49
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) On August 15, 2011, TWC entered into an agreement (the "Merger Agreement") with Insight Communications Company, Inc. ("Insight") and a representative of its stockholders to ...

  • Page 50
    ... of services to subscribers or the maintenance of the Company's delivery systems: video programming costs; high-speed data connectivity costs (including mobile high-speed data service costs); voice network costs; other service-related expenses, including non-administrative labor; franchise fees; and...

  • Page 51
    ... WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Selling, general and administrative expenses include amounts not directly associated with the delivery of services to subscribers or the maintenance of the Company's delivery systems...

  • Page 52
    ... who purchase at least the basic service video programming tier. The determination of whether a video subscriber is categorized as residential or business is based on the type of subscriber purchasing the service. During 2011, the Company acquired cable systems from NewWave, as well as two...

  • Page 53
    ...revenues were as follows (in millions): Year Ended December 31, 2011 2010 % Change Programming ...Premium channels ...Transactional video-on-demand ...Video equipment rental and installation charges ...DVR service ...Franchise and other fees(b) ...Total ...(a) tiers(a) $ 6,944 808 339 1,372 638...

  • Page 54
    ...per subscriber data): Year Ended December 31, 2011 2010 % Change Video programming ...Employee(a) ...High-speed data ...Voice ...Video franchise and other fees(b) ...Other direct operating costs(a) ...Total ...Costs of revenues as a percentage of revenues ...Average monthly video programming costs...

  • Page 55
    ... subscriber to decrease in 2012 compared to 2011. Other direct operating costs increased as a result of increases in a number of categories, including costs associated with advertising rep agreements, fuel expense and NaviSite-related costs. Additionally, in the fourth quarter of 2010, the Company...

  • Page 56
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Merger-related and restructuring costs. During 2011, the Company incurred merger-related costs of $10 million in connection with the NaviSite and NewWave cable system acquisitions...

  • Page 57
    ...quarter of 2010. Additionally, the income tax provisions and the effective tax rates for 2011 and 2010 were impacted by the reversal of deferred income tax assets associated with Time Warner stock option awards held by TWC employees, net of excess tax benefits realized upon the exercise of TWC stock...

  • Page 58
    ... Net income per common share attributable to TWC common shareholders for 2011 benefited from lower average common shares outstanding as a result of share repurchases under the Stock Repurchase Program. 2010 vs. 2009 The following discussion provides an analysis of the Company's results of operations...

  • Page 59
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Selected subscriber-related statistics were as follows (in thousands): December 31, 2010 2009 % Change Residential services: Video(a) ...High-speed data(b)(c) ...Voice(c)(d) ......

  • Page 60
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Average monthly revenues per unit were as follows: Year Ended December 31, 2010 2009 % Change Residential services: Video(a) ...High-speed data(b) ...Voice(c) ...Primary service ...

  • Page 61
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Business services revenues increased primarily due to growth in high-speed data and voice subscribers and increased cell tower backhaul and Metro Ethernet revenues. Advertising ...

  • Page 62
    ... expenses, net of late fees billed to subscribers. Late fees billed to subscribers were $140 million and $118 million in 2010 and 2009, respectively. As a result of the Separation from Time Warner on March 12, 2009, pursuant to their terms, Time Warner equity awards held by TWC employees were...

  • Page 63
    ... Clearwire Communications. Additionally, the income tax provision and the effective tax rate for 2010 were impacted by the reversal of deferred income tax assets associated with Time Warner stock option awards held by TWC employees, net of excess tax benefits realized upon the exercise of TWC stock...

  • Page 64
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) As a result of the Separation, on March 12, 2009, TWC employees who held stock option awards under Time Warner equity plans were treated as if their employment with Time Warner ...

  • Page 65
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Current Financial Condition As of December 31, 2011, the Company had $26.442 billion of debt, $5.177 billion of cash and equivalents (net debt of $21.265 billion, defined as total...

  • Page 66
    ... make discretionary cash contributions to the pension plans in 2012. As of December 31, 2011, the pension plans were underfunded by $50 million. See Note 15 to the accompanying consolidated financial statements for additional discussion of the pension plans. Net interest payments for 2011 increased...

  • Page 67
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Investing Activities Details of cash used by investing activities are as follows (in millions): Year Ended December 31, 2010 2009 2011 Acquisitions and investments, net of cash ...

  • Page 68
    ... at a customer's home or business. Also included in scalable infrastructure is certain equipment necessary for content aggregation and distribution (video-on-demand equipment) and equipment necessary to provide certain video, high-speed data and Digital Phone service features (voicemail, e-mail, etc...

  • Page 69
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) used by financing activities in 2010 primarily included net repayments under the Company's commercial paper program, the payment of quarterly cash dividends and repurchases of TWC...

  • Page 70
    ...contracts that the Company has with cable television networks and broadcast stations to provide programming services to its subscribers. The amounts included above represent estimates of the future programming costs for these contract requirements and commitments based on subscriber numbers and tier...

  • Page 71
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Contingent Commitments TWC has cable franchise agreements containing provisions requiring the construction of cable plant and the provision of services to customers within the ...

  • Page 72
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Foreign Currency Exchange Risk TWC is exposed to the market risks associated with fluctuations in the British pound sterling exchange rate as it relates to the £625 million in ...

  • Page 73
    ... evaluates available information (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline include recurring operating losses...

  • Page 74
    ... effect on the Company's consolidated financial position but could possibly be material to the Company's consolidated results of operations or cash flow for any one period. Pension Plans TWC sponsors qualified noncontributory defined benefit pension plans covering a majority of its employees. TWC...

  • Page 75
    ..., 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 76
    ... increased competition from video, high-speed data, networking and voice providers, particularly direct broadcast satellite operators, incumbent local telephone companies, ILECs, CLECs, companies that deliver programming over broadband Internet connections, and wireless broadband and phone providers...

  • Page 77
    ... ...Deferred income tax liabilities, net ...Other liabilities ...Commitments and contingencies (Note 19) TWC shareholders' equity: Common stock, $0.01 par value, 315.0 million and 348.3 million shares issued and outstanding as of December 31, 2011 and 2010, respectively ...Additional paid-in capital...

  • Page 78
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 2011 2010 2009 (in millions, except per share data) Revenues ...$ Costs and expenses: Costs of revenues(a) ...Selling, general and administrative(a) ...Depreciation ...Amortization ...Merger-related and ...

  • Page 79
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2010 2009 (in millions) 2011 Net income ...Change in unrealized losses on pension benefit obligation, net of income tax (benefit) provision of $(160) million in 2011, $25 million in 2010 and $95 million ...

  • Page 80
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF CASH FLOWS Year Ended December 31, 2010 2009 (in millions) 2011 OPERATING ACTIVITIES Net income ...$ Adjustments for noncash and nonoperating items: Depreciation ...Amortization ...Asset impairments ...Pretax gain on sale of cable systems ...Loss ...

  • Page 81
    ...based compensation expense ...Shares issued upon the exercise of TWC stock options ...Taxes paid in lieu of shares issued for equity-based compensation ...Cash dividends declared ($1.92 per common share) ...Repurchase and retirement of common stock ...Other changes ...Balance as of December 31, 2011...

  • Page 82
    ... of Business Time Warner Cable Inc. (together with its subsidiaries, "TWC"® or the "Company") is among the largest providers of video, high-speed data and voice services in the U.S., with technologically advanced, well-clustered cable systems located mainly in five geographic areas - New York State...

  • Page 83
    ...between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a reporting unit below its carrying amount. This guidance became effective for TWC on January 1, 2011 and did not have an impact on the Company's consolidated financial statements...

  • Page 84
    ... and related disclosures between GAAP and International Financial Reporting Standards. Additional disclosure requirements under this guidance include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by...

  • Page 85
    ... evaluates available information (e.g., budgets, business plans, financial statements, etc.) in addition to quoted market prices, if any, in determining whether an other-than-temporary decline in value exists. Factors indicative of an other-than-temporary decline include recurring operating losses...

  • Page 86
    ... Verizon Wireless to sell TWC services. In early 2012, TWC ceased making its existing wireless service available to new customers. As a result, during the fourth quarter of 2011, the Company impaired $60 million of assets related to the provision of wireless service that will no longer be utilized...

  • Page 87
    ... TWC's high-speed data service and (ii) the Advance/Newhouse Partnership for TWC's management of certain functions, including, among others, programming and engineering and (b) commissions earned on the sale of merchandise by home shopping networks. Fees paid to TWC for the ability to distribute TWC...

  • Page 88
    ... advertising services to a customer and at the same time purchases programming services); and/or Sales of multiple products and/or services (e.g., the Company sells video, high-speed data and voice services to a customer). • Contemporaneous Purchases and Sales In the normal course of business...

  • Page 89
    ... enters into sales contracts for the sale of multiple products or services, then the Company evaluates standalone selling price for each deliverable in the transaction. For example, the Company sells video, high-speed data and voice services to subscribers in a bundled package at a rate lower than...

  • Page 90
    ... market data through correlation or other means for substantially the full term of the financial instrument. Level 3: consists of financial instruments whose values are determined using pricing models that utilize significant inputs that are primarily unobservable, discounted cash flow methodologies...

  • Page 91
    ...results of operations or cash flow for any one period. Segments Public companies are required to disclose certain information about their reportable operating segments. Operating segments are defined as significant components of an enterprise for which separate financial information is available and...

  • Page 92
    ... The Company's restricted stock units granted to employees and non-employee directors are considered participating securities with respect to regular quarterly cash dividends. Diluted net income per common share attributable to TWC common shareholders for the year ended December 31, 2011 and 2009...

  • Page 93
    ... tax liabilities, but the Company does not expect any material changes to the allocation. Other Acquisitions Additionally, during 2011, TWC completed two acquisitions of cable systems in Texas and Ohio serving subscribers representing a total of 26,000 PSUs for $38 million in cash. The financial...

  • Page 94
    ... the consolidated statement of operations. SpectrumCo TWC is a participant in a joint venture, SpectrumCo, LLC ("SpectrumCo"), with Comcast Corporation ("Comcast") and Bright House Networks, LLC ("Bright House") that holds advanced wireless spectrum ("AWS") licenses. TWC made net cash investments in...

  • Page 95
    ...Justice requesting additional information about these agreements. In early 2012, TWC ceased making its existing wireless service available to new wireless customers. As a result, during the fourth quarter of 2011, the Company impaired $60 million ($36 million on an after-tax basis) of assets related...

  • Page 96
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Changes in the carrying value of the Company's goodwill from January 1 through December 31 are presented below (in millions): 2011 2010 Balance at beginning of year ...Acquisition of NaviSite ...Acquisition of NewWave ...

  • Page 97
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 9. DEBT TWC's debt as of December 31, 2011 and 2010 was as follows (in millions): Outstanding Balance as of December 31, 2011 2010 Maturity Senior notes and debentures(a) ...Revolving credit facility ...Commercial paper ...

  • Page 98
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Debt Securities") publicly in a number of offerings. TWC's obligations under the TWC Debt Securities are guaranteed by TWE and TW NY (the "TWC Debt Guarantors"). The TWC Debt Securities were issued pursuant to an indenture...

  • Page 99
    ...change in TWC's financial condition or results of operations; or borrowing restrictions due to material adverse changes in the Company's business or market disruption. Borrowings under the Revolving Credit Facility may be used for general corporate purposes, and unused credit is available to support...

  • Page 100
    ... Communications Corporation in 2006, TW NY Cable LLC ("TW NY Cable"), a subsidiary of TWC, issued $300 million of its Series A Preferred Membership Units (the "TW NY Cable Preferred Membership Units") to a limited number of third parties. The TW NY Cable Preferred Membership Units pay cash dividends...

  • Page 101
    ... rate risk management program and resulted in a decrease in interest expense, net, of $163 million in 2011, $117 million in 2010 and $30 million in 2009. Cash Flow Hedges The Company uses cross-currency swaps to manage foreign exchange risk related to foreign currency denominated debt by effectively...

  • Page 102
    ... Verizon Wireless to sell TWC services. In early 2012, TWC ceased making its existing wireless service available to new customers. As a result, during the fourth quarter of 2011, the Company impaired $60 million of assets related to the provision of wireless service that will no longer be utilized...

  • Page 103
    ...and timing of the Company's purchases under the Stock Repurchase Program are based on a number of factors, including TWC's common stock price as well as business and market conditions. From January 1, 2011 through December 31, 2011, the Company repurchased 37.3 million shares of TWC common stock for...

  • Page 104
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Common Stock Dividends The Company's Board of Directors declared quarterly cash dividends per share of TWC common stock in 2011 as follows (in millions, except per share data): 2011 Month Declared Per Share Amount Month ...

  • Page 105
    ...account estimated forfeitures. In addition, in connection with the 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...

  • Page 106
    ... statement of cash flows. Of the remaining $23 million Special Dividend retained distribution liability as of December 31, 2011, $13 million is classified in other current liabilities in the consolidated balance sheet. Prior to March 2007, Time Warner granted options to purchase Time Warner...

  • Page 107
    ...40 years. During February 2012, TWC granted options to purchase approximately 3.0 million shares of TWC common stock under the 2011 Plan, of which 372,000 were PBOs. 15. EMPLOYEE BENEFIT PLANS Pension Plans TWC sponsors two qualified noncontributory defined benefit pension plans - Time Warner Cable...

  • Page 108
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) "nonqualified pension plan" and, together with the qualified pension plans, the "pension plans"). Pension benefits are based on formulas that reflect the employees' years of service and compensation during their employment...

  • Page 109
    ... of plan liability cash flows to a pension yield curve constructed of a large population of high-quality corporate bonds. Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2011, 2010 and 2009 were as follows: 2011 2010 2009 Expected long-term...

  • Page 110
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) makes adjustments and changes when necessary. On a periodic basis, the Investment Committee conducts a broad strategic review of its portfolio construction and investment allocation policies. Neither the Company nor the ...

  • Page 111
    ...Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association valued using available trade information, dealer quotes, market indices and research reports, spreads, bids and offers. Other fixed-income securities consist of foreign government debt securities and U.S. government...

  • Page 112
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Changes in the fair value of investment assets valued using significant unobservable inputs (Level 3) from January 1 through December 31 are presented below (in millions): 2011 2010 Balance at beginning of year ......

  • Page 113
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 16. MERGER-RELATED AND RESTRUCTURING COSTS Merger-related Costs For the year ended December 31, 2011, the Company incurred merger-related costs of $10 million in connection with the NaviSite and NewWave cable system ...

  • Page 114
    ... Time Warner, reflecting the income tax positions and state income tax apportionments of TWC as a standalone taxpayer. Based on these returns, the Company concluded that an approximate 65 basis point change in the estimate of the effective tax rate applied to calculate its net deferred income tax...

  • Page 115
    ... directly to TWC shareholders' equity as a component of: Additional paid-in capital: Equity-based compensation ...Accumulated other comprehensive loss, net: Change in unrealized losses on pension benefit obligation ...Change in deferred gains (losses) on cash flow hedges ...Balance at end of year...

  • Page 116
    ... the Company's income tax provision and effective tax rate. The Company otherwise does not currently anticipate that its reserves related to uncertain income tax positions as of December 31, 2011 will significantly increase or decrease during the twelve-month period ended December 31, 2012; however...

  • Page 117
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) 18. RELATED PARTY TRANSACTIONS In the normal course of conducting its business, the Company has various transactions with equity-method investments, Time Warner and affiliates and subsidiaries of Time Warner. Effective ...

  • Page 118
    ... the actual subscriber numbers and tier placements. These amounts also include programming rights negotiated directly with content owners for distribution on TWC-owned channels or networks. Voice connectivity obligations relate to transport, switching and interconnection services, primarily provided...

  • Page 119
    ... Noia, et al. v. Time Warner Cable Inc., filed an amended complaint in a purported class action in U.S. District Court for the Southern District of New York alleging that the Company uses a throttling technique which intentionally delays and/or blocks a user's high-speed data service. Plaintiffs are...

  • Page 120
    ... the Eastern District 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...

  • Page 121
    ... the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Company's business, financial condition and operating results. 20. ADDITIONAL FINANCIAL INFORMATION Other Current Assets Other current assets as of December 31, 2011...

  • Page 122
    ... obligation to Time Warner ...Direct transaction costs related to the Separation ...Other ...Other expense, net ...Supplemental Cash Flow Information $ (88) (5) - 4 (89) $ (110) 5 - 6 (99) $ (49) (21) (28) 12 (86) $ $ $ Additional financial information with respect to cash (payments) and...

  • Page 123
    ... arrive at the information for Time Warner Cable Inc. on a consolidated basis. There are no legal or regulatory restrictions on the Parent Company's ability to obtain funds from any of its subsidiaries through dividends, loans or advances. These condensed consolidating financial statements should be...

  • Page 124
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The Company's condensed consolidating financial information is as follows (in millions): Consolidating Balance Sheet as of December 31, 2011 Parent Company NonGuarantor Guarantor TWC Subsidiaries Subsidiaries Eliminations ...

  • Page 125
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet as of December 31, 2010 Parent Company NonGuarantor Guarantor TWC Subsidiaries Subsidiaries Eliminations Consolidated ASSETS Current assets: Cash and equivalents ...$ Receivables, net ......

  • Page 126
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended of December 31, 2011 NonParent Guarantor Guarantor TWC Company Subsidiaries Subsidiaries Eliminations Consolidated Revenues ...$ Costs and expenses: Costs of ...

  • Page 127
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended of December 31, 2010 NonParent Guarantor Guarantor TWC Company Subsidiaries Subsidiaries Eliminations Consolidated Revenues ...$ Costs and expenses: Costs of ...

  • Page 128
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended of December 31, 2009 NonParent Guarantor Guarantor TWC Company Subsidiaries Subsidiaries Eliminations Consolidated Revenues ...$ Costs and expenses: Costs of ...

  • Page 129
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows for the Year Ended December 31, 2011 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Cash provided (used) by operating activities ......

  • Page 130
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows for the Year Ended December 31, 2010 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Cash provided (used) by operating activities ......

  • Page 131
    ...Other investing activities ...Cash provided (used) by investing activities ...FINANCING ACTIVITIES Short-term borrowings (repayments), net ...Borrowings ...Repayments ...Debt issuance costs ...Proceeds from exercise of stock options ...Payment of special cash dividend ...Net change in investments in...

  • Page 132
    ... because of changes in conditions or that the degree of compliance with the policies and procedures may decline. Management conducted an evaluation of the effectiveness of the Company's system of internal control over financial reporting as of December 31, 2011 based on the framework set forth in...

  • Page 133
    ... balance sheets of Time Warner Cable Inc. (the "Company") as of December 31, 2011 and 2010, and the related consolidated statements of operations, cash flows, equity and comprehensive income for each of the three years in the period ended December 31, 2011. These financial statements are the...

  • Page 134
    ...and the related consolidated statements of operations, cash flows, equity and comprehensive income for each of the three years in the period ended December 31, 2011 of Time Warner Cable Inc. and our report dated February 17, 2012 expressed an unqualified opinion thereon. New York, New York February...

  • Page 135
    ... financial statements not included herein. Capitalized terms are as defined and described in the consolidated financial statements or elsewhere herein. Year Ended December 31, 2010 2009 2008 (in millions, except per share data) 2011 2007 Selected Operating Statement Information: Revenues ...Costs...

  • Page 136
    ... Time Warner, reflecting the income tax positions and state income tax apportionments of TWC as a standalone taxpayer. Based on these returns, the Company concluded that an approximate 65 basis point change in the estimate of the effective tax rate applied to calculate its net deferred income tax...

  • Page 137
    TIME WARNER CABLE INC. QUARTERLY FINANCIAL INFORMATION (Unaudited) Quarter Ended June 30, September 30, December 31, (in millions, except per share data) March 31, 2011 Revenues ...Operating Income ...Net income ...Net income attributable to TWC shareholders ...Net income per common share ...

  • Page 138
    ... Communications Inc. ("WCI"), American Television and Communications Corporation ("ATC"), the Company and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.10 to Time Warner Inc.'s ("Time Warner") Annual Report on Form 10-K for the year ended December 31, 2003 (File...

  • Page 139
    ..., among Historic TW, TWE, TW NY Cable Holding Inc. ("TW NY"), Time Warner NY Cable LLC ("TW NY Cable"), the Company, WCI, ATC and The Bank of New York, as Trustee (incorporated herein by reference to Exhibit 4.1 to Time Warner's Current Report on Form 8-K dated and filed with the SEC on October 18...

  • Page 140
    ..., 2009, to the TWE Limited Partnership Agreement, between Time Warner Cable LLC, TW NY Cable, and TWE GP Holdings LLC (incorporated herein by reference to Exhibit 10.2 to the Company's Annual Report on Form 10-K for the year ended December 31, 2009 (the "TWC 2009 Form 10-K")). Contribution Agreement...

  • Page 141
    ..., dated May 20, 2008, among Time Warner, the Company, TWE, TW NY, WCI, Historic TW and ATC (incorporated herein by reference to Exhibit 99.1 to the Company's Current Report on Form 8-K dated May 20, 2008 and filed with the SEC on May 27, 2008 (the "TWC May 20, 2008 Form 8-K")). Reimbursement...

  • Page 142
    ...the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2011 and filed with the SEC on July 28, 2011). Employment Agreement, dated July 27, 2011 and effective as of July 15, 2011, between the Company and Irene M. Esteves (incorporated herein by reference to Exhibit 10.2 to the TWC...

  • Page 143
    ...SEC on April 6, 2011). Time Warner Cable Inc. 2007 Annual Bonus Plan (incorporated herein by reference to Exhibit 10.45 to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2006 (the "TWC 2006 Form 10-K")). Form of Non-Qualified Stock Option Agreement, used through 2009...

  • Page 144
    ... Trust, Time Warner Cable Information Services (Kansas), LLC, Time Warner Cable Information Services (Missouri), LLC, Time Warner Information Services (Texas), L.P., Time Warner Cable/Comcast Kansas City Advertising, LLC, TCP/Comcast Las Cruces Cable Advertising, LP, TCP Security Company LLC, TCP...

  • Page 145
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  • Page 146
    ... Group Index") by measuring changes in the common stock prices from March 1, 2007, the first day the Company's Class A common stock traded on the New York Stock Exchange, through December 31, 2011. On March 12, 2009, the Company effected a recapitalization whereby each share of the Company's Class...

  • Page 147
    ..., New York, NY 10023, Attn: Investor Relations, or by email to [email protected]. The Annual Report on Form 10 K and Time Warner Cable Inc.'s Quarterly Reports on Form 10 Q, as well as certain other documents filed with the SEC, are available on the company's Investor Relations website at www.twc.com...

  • Page 148
    Time Warner Cable Inc. 60 Columbus Circle New York, NY 10023 212.364.8200 www.twc.com NYSE: TWC