Time Warner Cable 2011 Annual Report Download - page 102

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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
12. FAIR VALUE MEASUREMENTS
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair values of derivative financial instruments classified as assets and liabilities as of December 31, 2011 and 2010
were as follows (in millions):
December 31, 2011 December 31, 2010
Fair Value Measurements Fair Value Measurements
Fair Value Level 2 Level 3 Fair Value Level 2 Level 3
Assets:
Interest rate swaps .................... $ 297 $ 297 $ — $ 176 $ 176 $ —
Other derivative assets ................ — — — 1 1 —
Total .............................. $ 297 $ 297 $ — $ 177 $ 177 $ —
Liabilities:
Cross-currency swaps ................. $ 67 $ 67 $ — $ — $ — $ —
Equity award reimbursement obligation . . . 22 — 22 20 — 20
Total .............................. $ 89 $ 67 $ 22 $ 20 $ — $ 20
The fair value of interest rate swaps, classified as Level 2, utilized a DCF analysis based on the terms of the contract and
an interest rate curve, and incorporates the credit risk of the Company and each counterparty. The fair value of foreign
currency forwards, classified as Level 2, utilized a DCF analysis based on forward exchange rates less the contract rate
multiplied by the notional amount. The fair value of cross-currency swaps, classified as Level 2, utilized a DCF analysis
based on forward interest and exchange rates, and incorporates the credit risk of the Company and each counterparty. The
fair value of the equity award reimbursement obligation, classified as Level 3, utilized a Black-Scholes model using the fair
value and expected volatility of Time Warner common stock.
Changes in the fair value of the equity award reimbursement obligation, valued using significant unobservable inputs
(Level 3), from January 1 through December 31 are presented below (in millions):
2011 2010 2009
Balance at beginning of year ............................................. $ 20 $ 35 $ —
Establishment of equity award reimbursement obligation ....................... — — 16
(Gains) losses recognized in other expense, net .............................. 5 (5) 21
Payments to Time Warner for awards exercised .............................. (3) (10) (2)
Balance at end of year .................................................. $ 22 $ 20 $ 35
Assets and Liabilities Measured at Fair Value on a Nonrecurring Basis
The Company’s assets measured at fair value on a nonrecurring basis include equity-method investments, long-lived
assets, indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets whenever
events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually for
indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the instrument be recorded
at its fair value. Refer to Note 8 for a discussion of the Company’s annual impairment analysis.
On December 2, 2011, TWC and Verizon Wireless entered into agency agreements that will allow TWC to sell Verizon
Wireless-branded wireless service, and 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. Refer to Note 7 for further
discussion of wireless-related agreements.
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