Time Warner Cable 2011 Annual Report Download - page 34

any of these facts, assumptions, representations or undertakings are not correct or have been violated, or for other reasons,
including as a result of significant changes in the stock ownership of Time Warner or TWC after the Distribution.
Under the tax sharing agreement among Time Warner and TWC, TWC generally would be required to indemnify Time
Warner against its taxes resulting from the failure of any of the Separation Transactions to qualify as tax-free as a result of
(i) certain actions or failures to act by TWC or (ii) the failure of certain representations made by TWC to be true. In addition,
even if TWC bears no contractual responsibility for taxes related to a failure of the Separation Transactions to qualify for
their intended tax treatment, Treasury regulation section 1.1502-6 imposes on TWC several liability for all Time Warner
federal income tax obligations relating to the period during which TWC was a member of the Time Warner federal
consolidated tax group, including the date of the Separation Transactions. Similar provisions may apply under foreign, state
or local law. Absent TWC causing the Separation Transactions to not qualify as tax-free, Time Warner has indemnified TWC
against such several liability arising from a failure of the Separation Transactions to qualify for their intended tax treatment.
Tax legislation and administrative initiatives or challenges to the 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, various legislative and/or administrative initiatives may
be proposed that could adversely affect the Company’s tax positions. There can be no assurance that the Company’s effective
tax rate or tax payments will not be adversely affected by these initiatives. As a result of state and local budget shortfalls due
primarily to the economic environment as well as other considerations, certain states and localities have imposed or are
considering imposing new or additional taxes or fees on TWC’s services or changing the methodologies or base on which
certain fees and taxes are computed. Such potential changes include additional taxes or fees on TWC’s services that could
impact its customers, combined reporting and other changes to general business taxes, central/unit-level assessment of
property taxes and other matters that could increase TWC’s income, franchise, sales, use and/or property tax liabilities. In
addition, U.S. federal, state and local tax laws and regulations are extremely complex and subject to varying interpretations.
There can be no assurance that TWC’s tax positions will not be challenged by relevant tax authorities or that TWC would be
successful in any such challenge.
Applicable law is subject to change.
The exact requirements of applicable law are not always clear, and the rules affecting TWC’s businesses are always
subject to change. For example, the FCC may interpret its rules and regulations in enforcement proceedings in a manner that
is inconsistent with the judgments TWC has made. Likewise, regulators and legislators at all levels of government may
sometimes change existing rules or establish new rules. Congress, for example, considers new legislative requirements for
cable operators virtually every year, and there is always a risk that such proposals will ultimately be enacted. In addition,
federal, state or local governments and/or tax authorities may change tax laws, regulations or administrative practices that
could negatively impact TWC’s operating results and financial condition. See “Business—Regulatory Matters.”
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
TWC’s principal physical assets consist of operating plant and equipment, including signal receiving, encoding and
decoding devices, headends and distribution systems and equipment at or near subscribers’ homes for each of TWC’s cable
systems. The signal receiving apparatus typically includes a tower, antenna, ancillary electronic equipment and earth stations
for reception of satellite signals. Headends, consisting of electronic equipment necessary for the reception, amplification and
modulation of signals, are located near the receiving devices. TWC’s distribution system consists primarily of fiber optic and
coaxial cables, lasers, routers, switches and related electronic equipment. TWC’s cable plant and related equipment generally
are either attached to utility poles under pole rental agreements with local public utilities or the distribution cable is buried in
underground ducts or trenches. Customer premise equipment consists principally of set-top boxes and cable modems. The
physical components of cable systems require periodic maintenance.
TWC’s high-speed data backbone consists of fiber owned by TWC or circuits leased from third-party vendors, and
related equipment. TWC also operates regional and national data centers with equipment that is used to provide services,
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