Time Warner Cable 2011 Annual Report Download - page 96

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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 .................................................... $ 2,091 $ 2,111
Acquisition of NaviSite ........................................................ 142 —
Acquisition of NewWave cable systems ........................................... 10 —
Other ....................................................................... 4 (20)
Balance at end of year(a) ......................................................... $ 2,247 $ 2,091
(a) There were no accumulated goodwill impairment charges as of December 31, 2011 and 2010.
Annual Impairment Analysis
The carrying value of cable franchise rights and goodwill as of December 31, 2011 and 2010 was as follows (in
millions):
Carrying Value as of
December 31, 2011 December 31, 2010
Cable
Franchise
Rights Goodwill
Cable
Franchise
Rights Goodwill
Midwest ............................................. $ 6,100 $ 572 $ 5,934 $ 562
Northeast ............................................. 5,645 466 5,645 466
Carolinas ............................................. 3,969 231 3,969 231
West ................................................ 3,498 484 3,498 484
New York City ........................................ 3,345 204 3,345 204
Texas ................................................ 1,715 148 1,700 144
NaviSite ............................................. — 142 — —
Total ................................................ $ 24,272 $ 2,247 $ 24,091 $ 2,091
The Company determined that cable franchise rights and goodwill were not impaired during its annual impairment
analyses as of July 1, 2011 and 2010 and December 31, 2009 respectively. As discussed in Note 6, the Company acquired
NaviSite on April 21, 2011 and recorded goodwill of $142 million. As such, the estimated fair value of NaviSite
approximates its carrying value and a future decline in the estimated fair value would result in a goodwill impairment.
The estimates of fair value for the cable franchise rights were determined using a discounted cash flow (“DCF”)
analysis, which utilizes significant unobservable inputs (Level 3) within the fair value hierarchy. The DCF methodology
entailed identifying the projected discrete cash flows related to the cable franchise rights and discounting them back to the
valuation date. Significant judgments inherent in this analysis included the selection of appropriate discount rates, estimating
the amount and timing of future cash flows attributable to cable franchise rights and identification of appropriate terminal
growth rate assumptions. The discount rates used in the DCF analyses were intended to reflect the risk inherent in the
projected future cash flows generated by the respective intangible assets.
The impairment test for goodwill is conducted using a two-step process. In performing the first step of the goodwill
impairment test, the Company elected to carry forward the values ascribed to its reporting units during its previous annual
impairment test. The Company determined the fair value of each reporting unit using a DCF analysis that is corroborated by
a market-based approach, which utilizes significant unobservable inputs (Level 3) within the fair value hierarchy. The
election to carry forward values was based upon management’s determination, after reviewing events that have occurred and
circumstances that have changed since the last test, that the likelihood that the carrying amount of its reporting units
exceeded their fair value was remote. Additionally, under the previous test, the value of the Company’s reporting units
significantly exceeded their carrying value. In making its determination, management considered changes in all of the
significant variables impacting the fair value of its reporting units including, forecasted cash flows under its most recent
long-range projections, changes in discount rates and changes in terminal growth rate assumptions.
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