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TIME WARNER CABLE
ANNUAL
REPORT
2012
TIME WARNER CABLE
NNUAL
EPOR
2 0 1 2
TIME WARNER CABLE
ANNUAL
REPORT
2012

Table of contents

  • Page 1
    220 01122 Time Warner Cable Time Warner Cable annual annual nnual reporT reporT epor

  • Page 2
    ... of new york University and CEO in Action by profiles in diversity Journal irene esteves, executive vice president & chief Financial officer-Wonder Woman Award by multichannel news and Woman Worth Watching by profiles in diversity Journal leadership honors time warner cable business class- company...

  • Page 3
    ...unique customers used the TWC TVâ„¢ app- almost four million times. In addition, we bolstered our programming lineups in 2012, particularly in sports, and we launched two new regional sports networks (RSNs) to serve as home to the Los Angeles Lakers in Southern California-Time Warner Cable SportsNet...

  • Page 4
    ... and account management features on a range of devices. ^ We successfully integrated the former insight Communications systems, acquired on February 29, 2012, leveraging greater economies of scale and offering our new customers state-of-the-art technology and new product innovations that will make...

  • Page 5
    ... content to more devices-anytime, anywhere; more than double our WiFi network; and launch our next-generation home security, monitoring, automation and control platform system-wide in 2013, up from approximately 25% of our footprint at year-end 2012. Disciplined Financial management: Actively manage...

  • Page 6
    ... and responsibility have in common? They both can deliver a difference. Time Warner Cable's mission is to connect people and businesses with information, entertainment and each other and give customers control in ways that are simple and easy-to make a difference in their lives. When it comes to...

  • Page 7

  • Page 8

  • Page 9
    ... Circle New York, New York 10023 (Address of principal executive offices) (Zip Code) (212) 364-8200 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered Common Stock, par...

  • Page 10

  • Page 11
    ...cable systems. TWC's business services also include networking and transport services (including cell tower backhaul services) and managed and outsourced information technology ("IT") solutions and cloud services. TWC also sells advertising to a variety of national, regional and local customers. TWC...

  • Page 12
    ... contents of the website into this report. Services TWC offers video, high-speed data and voice services to residential and business services customers over the Company's broadband cable systems. TWC's business services also include networking and transport services (including cell tower backhaul...

  • Page 13
    ... 72 hours after it has aired. Start Over and Look Back are available in nearly all of TWC's service areas. New ways to watch. TWC, through its TWC TV apps, enables in-home viewing of up to 300 channels of live programming on iPad, iPhone and Android devices and over 4,000 VOD programs and movies on...

  • Page 14
    ... music, movie listings, shopping, ticketing and coupon sites. To enhance its traditional high-speed data service offerings, TWC has deployed WiFi access points, TWC WiFi Hotspots, in high-traffic locations across Los Angeles as well as in several locations in New York City, Charlotte and Kansas City...

  • Page 15
    ... ("PRI") trunk services. Multi-line phone. TWC's multi-line business voice service, Business Class Phone, offers business customers a range of calling plan options along with key business features, such as call hunting, extensive call forwarding options, call restrictions and call transfer. TWC also...

  • Page 16
    ...-speed data and voice bundle that includes certain enhanced features. TWC also offers Time Warner Cable TV Essentials and Essentials Internet, video and high-speed data packages that appeal to budget-conscious customers. TWC uses product innovations, like its TWC TV apps, to differentiate TWC from...

  • Page 17
    ... customer's site to support business data, networking and wholesale transport services. Historically, TWC has utilized local headends in each of its systems to receive, transcode and transmit video signals. TWC is transitioning from the use of local headends to two national centers. These national...

  • Page 18
    ... Verizon have begun offering services that allow subscribers to view television programming and rent movies on mobile devices. TWC also faces competition in some areas from the DSL, wireless broadband and phone offerings of smaller incumbent local telephone companies, such as Frontier Communications...

  • Page 19
    ... Internet-delivered content on television sets and mobile devices. TWC also competes with online order services with mail delivery and video stores. Internet competition. TWC's residential high-speed data service faces competition from a variety of companies that offer other forms of online services...

  • Page 20
    ... parties; cable system ownership; the offering of data and voice services; and TWC's use of utility poles and conduits. The following is a summary of current significant federal, state and local laws and regulations affecting the growth and operation of TWC's business. Video Services Carriage of...

  • Page 21
    ... superstations, local origination channels, a few specialty networks and public access, educational and government channels. This regulation also applies to the installation, sale and lease of equipment used by subscribers to receive basic service, such as set-top boxes and remote control units. As...

  • Page 22
    ... rate regulation to the same extent as basic cable service. Under these regulations, cable operators are allowed to set equipment rates for set-top boxes, conditional-access security cards or CableCARDs and remote controls on the basis of actual capital costs, plus an annual after-tax rate of return...

  • Page 23
    ... operators are regulated, by state franchising authorities, local franchising authorities, or both. Franchise agreements typically require payment of franchise fees and contain regulatory provisions addressing, among other things, upgrades, service quality, cable service to schools and other public...

  • Page 24
    ...-Risks Related to Government Regulation-'Net neutrality' legislation or regulation could limit TWC's ability to operate its business profitably and to manage its broadband facilities efficiently." Voice Services TWC currently offers residential and business voice services using VoIP technology...

  • Page 25
    ...industry specific and regulate TWC because it is a cable operator, a telecommunications provider and the operator of websites and mobile applications. Other requirements apply generally to all companies that hold consumer data or market to consumers using email or the telephone, including state data...

  • Page 26
    ...to new product development. Following the September 30, 2012 internal reorganization, TWCE performs these functions pursuant to the services agreement. TWC receives a fee for providing the A/N Subsidiary with high-speed data services and the management functions noted above. Restrictions on transfer...

  • Page 27
    ... promotional pricing, exclusive programming, and/or assertions of superior service or offerings. Increasingly, TWC's residential video service also faces competition from companies that deliver content to consumers over the Internet and on mobile devices, some without charging a fee for access...

  • Page 28
    ...business is subject to risks relating to increasing competition for the leisure and entertainment time and discretionary spending of consumers. TWC's business competes with all other sources of entertainment and information delivery. Technological advancements, such as new video formats and Internet...

  • Page 29
    ... the future. See "-Risks Related to Government Regulation-'Net neutrality' legislation or regulation could limit TWC's ability to operate its business profitably and to manage its broadband facilities efficiently." TWC relies on network and information systems and other technology, and a disruption...

  • Page 30
    ... TWC's cost of borrowing and make it more difficult for TWC to obtain financing. Risks Related to Dependence on Third Parties Increases in programming and retransmission costs or the inability to obtain popular programming could adversely affect TWC's operations, business or financial results. Video...

  • Page 31
    ... lawful traffic. In order to continue to provide quality high-speed data service at attractive prices and to offer new services, TWC needs the continued flexibility to develop and refine business models that respond to changing consumer uses and demands, to manage bandwidth usage efficiently and...

  • Page 32
    ...attachment costs. Under federal law, TWC has the right to attach cables carrying video and other services to telephone and similar poles of investor-owned utilities at regulated rates. However, because these cables may carry services other than video services, such as high-speed data services or new...

  • Page 33
    ...connection with the Separation, including the transfer by a subsidiary of Time Warner of its 12.43% nonvoting common stock interest in TW NY Cable Holding Inc. 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...

  • Page 34
    ...-speed data network. As of December 31, 2012, TWC leased and owned real property housing national operations centers and data centers used in its high-speed data services business in Herndon, Virginia; Charlotte, North Carolina; Raleigh, North Carolina; Syracuse, New York; Austin, Texas; Kansas City...

  • Page 35
    ... East has served as the Company's Executive Vice President and Chief Communications Officer since October 2007. Prior to that, she served as Vice President of Communications and Public Affairs at Cox Communications Inc., a provider of video, Internet and telephone services, from January 2000 having...

  • Page 36
    ... responsible for various cable systems. Prior to joining the Company, Mr. Goetz held several executive positions at Comcast Corporation. Mr. LaJoie ...Michael L. LaJoie has served as the Company's Executive Vice President and Chief Technology and Network Operations Officer since January 2013 and as...

  • Page 37
    ... as the Company's Executive Vice President and Chief Video and Content Officer since January 2012. Prior to that, Ms. Witmer served as the Company's Executive Vice President and Chief Programming Officer from January 2007, after serving as the Company's Senior Vice President of Programming from June...

  • Page 38
    ...'s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity 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...

  • Page 39
    ... Executive Officer and the Chief Financial Officer concluded that TWC's disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed or submitted by TWC under the Exchange Act is recorded, processed, summarized and reported within the time...

  • Page 40
    ... of the Code is publicly available on the Company's website at www.twc.com/investors. Amendments to the Code or any grant of a waiver from a provision of the Code requiring disclosure under applicable SEC rules will also be disclosed on the Company's website. Equity Compensation Plan Information The...

  • Page 41
    ... herein by reference. Exhibits 10.20 through 10.37 and 10.40 through 10.63 listed on the accompanying Exhibit Index identify management contracts or compensatory plans or arrangements required to be filed as exhibits to this Annual Report, and such listing is incorporated herein by reference. 31

  • Page 42
    .... TIME WARNER CABLE INC. By: /s/ GLENN A. BRITT Name: Glenn A. Britt Title: Chairman and Chief Executive Officer Dated: February 15, 2013 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 following persons on...

  • Page 43
    ... Statement of Equity ...74 Notes to Consolidated Financial Statements ...75 Management's Report on Internal Control Over Financial Reporting ...128 Reports of Independent Registered Public Accounting Firm ...129 Selected Financial Information ...131 Quarterly Financial Information ...133 33

  • Page 44
    .... TWC offers video, high-speed data and voice services to residential and business services customers over the Company's broadband cable systems. TWC's business services also include networking and transport services (including cell tower backhaul services) and managed and outsourced information...

  • Page 45
    ...'s business video service faces competition from direct broadcast satellite providers. TWC also competes with cloud, hosting and related service providers and application-service providers. Technological advances and product innovations have increased and will likely continue to increase the number...

  • Page 46
    ...) Company's Board of Directors declared an increased quarterly cash dividend of $0.65 per share of TWC common stock, payable in cash on March 15, 2013 to stockholders of record at the close of business on February 28, 2013. In addition to paying quarterly cash dividends, during 2012, TWC repurchased...

  • Page 47
    ...September 30, 2012, TWC's obligations under the debt securities issued in the 2012 Bond Offerings are guaranteed by TW NY, Time Warner Cable Enterprises LLC ("TWCE") and Time Warner Cable Internet Holdings II LLC ("TWC Internet Holdings II"), each a 100% owned subsidiary of the Company. As described...

  • Page 48
    ...by the sale of point-to-point transport services offered to wireless telephone providers (i.e., cell tower backhaul) and other carriers. Other. Other revenue primarily includes revenue from managed and outsourced IT solutions and cloud services and other business subscriber-related fees. Advertising...

  • Page 49
    ... maintenance of the Company's delivery systems: video programming costs; high-speed data connectivity costs; voice network costs; other service-related expenses, including non-administrative labor; franchise fees; and other related costs. Beginning in the fourth quarter of 2012, cost of revenue also...

  • Page 50
    ... services ...$ Business services ...Advertising ...Other ...Total ...$ (a) 18,175 1,901 1,053 257 21,386 $ 17,093 1,469 880 233 19,675 6.3% 29.4% 19.7% 10.3% 8.7% $ Revenue for 2012 and 2011 includes revenue from Insight since its acquisition on February 29, 2012, the cable systems acquired...

  • Page 51
    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, 2012(a) 2011 % Change(a) Residential services: Customer relationships(b) ...Video(c) ...High-...

  • Page 52
    ... for 2012 and 2011 includes revenue from Insight since its acquisition on February 29, 2012 and the cable systems acquired from NewWave on November 1, 2011, as follows (in millions): Year Ended December 31, 2012 Insight NewWave 2011 NewWave Residential services: Video ...$ High-speed data ...Voice...

  • Page 53
    ...29, 2012 and the cable systems acquired from NewWave on November 1, 2011, as follows (in millions): Year Ended December 31, 2012 Insight NewWave 2011 NewWave Programming tiers(b) ...$ Premium networks ...Transactional video-on-demand ...Video equipment rental and installation charges ...DVR service...

  • Page 54
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Business services revenue. The major components of business services revenue were as follows (in millions): Year Ended December 31, 2012(a) 2011(a) % Change(a) Business services...

  • Page 55
    ... services to subscribers and the maintenance of the Company's delivery systems. Video franchise and other fees include fees collected on behalf of franchising authorities and the FCC. Cost of revenue increased primarily related to growth in video programming, employee and other direct operating...

  • Page 56
    ... Asset impairments. 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 of assets related to the provision of wireless service that would no longer be utilized. Of the $60...

  • Page 57
    ... related to the Company's mobile high-speed data service and home automation and monitoring services. In late October 2012, Superstorm Sandy caused damage and business interruption to the Company's cable systems from the Carolinas to Maine and into Ohio, with the most significant impact in the New...

  • Page 58
    ... 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 liability was required. As a result, TWC recorded a noncash income tax benefit of $178 million during the fourth quarter of...

  • Page 59
    ... and the effective tax rates for 2012 and 2011 include the impact of 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 options or vesting of TWC restricted stock units...

  • Page 60
    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, 2011(a) 2010 % Change(a) Residential services: Video(b) ...High-speed data(c) ...Voice(d) ......

  • Page 61
    ... fees for the Company's various tiers or packages of video programming services generally distinguished from one another by the number and type of programming networks they include. Franchise and other fees include fees collected on behalf of franchising authorities and the FCC. The modest increase...

  • Page 62
    ... services to subscribers and the maintenance of the Company's delivery systems. Video franchise and other fees include fees collected on behalf of franchising authorities and the FCC. Cost of revenue increased primarily related to growth in video programming, employee and other direct operating...

  • Page 63
    ... Asset impairments. 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 of assets related to the provision of wireless service that would no longer be utilized. Of the $60...

  • Page 64
    ... $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. that were fully amortized as of December 31, 2010. Operating Income. Operating Income increased primarily due to the increase in OIBDA and the...

  • Page 65
    ...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 66
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Absent the impacts of the above items, the effective tax rates would have been 39.5% and 40.3% for 2011 and 2010, respectively. Net income attributable to TWC shareholders and net...

  • Page 67
    ... on Form S-3 with the Securities and Exchange Commission (the "SEC") that allows TWC to offer and sell from time to time a variety of securities. On January 30, 2013, the Company's Board of Directors declared a quarterly cash dividend of $0.65 per share of TWC common stock, payable in cash on March...

  • Page 68
    ... in 2012 benefited from a number of deductions that will not recur in 2013 and, as a result, the Company expects that net income tax payments in 2013 will increase compared to 2012. Net interest payments for 2012 increased primarily as a result of interest payments related to the 2011 Bond Offerings...

  • Page 69
    ... acquisitions of NaviSite and the NewWave cable systems. Capital expenditures in 2012 included approximately $100 million of Insight-related capital spending. Cash used by investing activities increased from $2.872 billion in 2010 to $3.530 billion in 2011. This increase was principally due to the...

  • Page 70
    ... set-top boxes, remote controls, high-speed data modems (including wireless), telephone modems and the costs of installing such new equipment. Customer premise equipment also includes materials and labor costs incurred to install the "drop" cable that connects a customer's dwelling or business...

  • Page 71
    ... the repayment of Insight's senior credit facility and senior notes, repurchases of TWC common stock and the payment of quarterly cash dividends, partially offset by the net proceeds of the 2012 Bond Offerings and the net proceeds from the exercise of stock options. Cash used by financing activities...

  • Page 72
    ... assets and services to be used in the normal course of the Company's operations. For example, the Company is contractually committed to make certain minimum lease payments for the use of property under operating lease agreements. In accordance with applicable accounting rules, the future rights and...

  • Page 73
    ... plan, the Company contributed $4 million during 2012 and will continue to make contributions in 2013 to the extent benefits are paid. Contingent Commitments TWC has cable franchise agreements containing provisions requiring the construction of cable plant and the provision of services to customers...

  • Page 74
    ... part of the Company's interest rate risk management program and resulted in a decrease in interest expense, net, of $160 million in 2012. 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 its...

  • Page 75
    ... value of the Company's fixed-rate British pound sterling denominated debt resulting from changes in exchange rates. Equity Risk Prior to 2007, some of TWC's employees were granted options to purchase shares of Time Warner common stock in connection with their past employment with subsidiaries and...

  • Page 76
    TIME WARNER CABLE INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION-(Continued) Derivative Financial Instruments The Company uses derivative financial instruments primarily to manage the risks associated with fluctuations in interest rates and foreign ...

  • Page 77
    ... in 2013 based on a discount rate of 4.31%, an expected long-term rate of return on plan assets of 7.50% and an estimated rate of future compensation increases of 4.75%. Programming Agreements The Company exercises significant judgment in estimating programming expense associated with certain video...

  • Page 78
    ... construction of its cable systems. Costs associated with the construction of transmission and distribution facilities are capitalized. With respect to customer premise equipment, which includes set-top boxes and high-speed data and telephone modems, TWC capitalizes installation costs only upon the...

  • Page 79
    ... and business services customers and advertisers; changes in the regulatory and tax environments in which the Company operates, including, among others, regulation of broadband Internet services, "net neutrality" legislation or regulation and federal, state and local taxation; increased difficulty...

  • Page 80
    ... preferred equity issued by a subsidiary ...Deferred income tax liabilities, net ...Other liabilities ...Commitments and contingencies (Note 18) TWC shareholders' equity: Common stock, $0.01 par value, 297.7 million and 315.0 million shares issued and outstanding as of December 31, 2012 and 2011...

  • Page 81
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF OPERATIONS Year Ended December 31, 2012 2011 2010 (in millions, except per share data) Revenue ...$ Costs and expenses: Cost of revenue(a) ...Selling, general and administrative(a) ...Depreciation ...Amortization ...Merger-related and restructuring ...

  • Page 82
    TIME WARNER CABLE INC. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Year Ended December 31, 2011 2010 (in millions) 2012 Net income ...$ Change in accumulated unrealized losses on pension benefit obligation, net of income tax benefit (provision) of $100 million in 2012, $160 million in 2011 and ...

  • Page 83
    ... of stock options ...Taxes paid in cash in lieu of shares issued for equity-based compensation ...Excess tax benefit from equity-based compensation ...Dividends paid ...Repurchases of common stock ...Acquisition of noncontrolling interest ...Other financing activities ...Cash used by financing...

  • Page 84
    ...(loss) ...Equity-based compensation expense ...Excess tax benefit realized from equity-based compensation ...Shares issued upon the exercise of TWC stock options ...Taxes paid in lieu of shares issued for equity-based compensation ...Cash dividends declared ($2.24 per common share) ...Repurchase and...

  • Page 85
    ... Los Angeles) and Texas. TWC offers video, high-speed data and voice services to residential and business services customers over the Company's broadband cable systems. TWC's business services also include networking and transport services (including cell tower backhaul services) and managed...

  • Page 86
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) became effective for TWC on January 1, 2012 and did not have a material impact on the Company's consolidated financial statements. Testing Goodwill for Impairment In September 2011, the FASB issued authoritative guidance ...

  • Page 87
    ... construction of its cable systems. Costs associated with the construction of transmission and distribution facilities are capitalized. With respect to customer premise equipment, which includes set-top boxes and high-speed data and telephone modems, TWC capitalizes installation costs only upon the...

  • Page 88
    ...fair value. 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 of assets related to the provision of wireless service that would no longer be utilized, of which a portion...

  • Page 89
    ... period of change. The Company uses derivative financial instruments primarily to manage the risks associated with fluctuations in interest rates and foreign currency exchange rates and does not enter into derivative financial instruments for speculative or trading purposes. The Company determines...

  • Page 90
    ... by the sale of point-to-point transport services offered to wireless telephone providers (i.e., cell tower backhaul) and other carriers and (v) other revenue primarily consisting of revenue from managed and outsourced IT solutions and cloud services and other business subscriber-related fees. 80

  • Page 91
    ... and business services revenue when the connections are completed, as installation revenue recognized is less than the related direct selling costs. Video programming, high-speed data connectivity and voice network costs are recorded as the services are provided. Video programming costs are...

  • Page 92
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) purchases programming services) and/or (ii) sales of multiple products and/or services (e.g., the Company sells video, highspeed data and voice services to a customer). Contemporaneous Purchases and Sales In the normal ...

  • Page 93
    ... taxpayer and Time Warner is obligated to make payments to TWC for TWC tax attributes used by Time Warner, but only as and when TWC as a standalone taxpayer would have been able to use such attributes itself. The Company received net cash tax refunds from Time Warner of $6 million in 2012 and $87...

  • Page 94
    ...experience of TWC employees. The risk-free rate assumed in valuing the stock options is based on the U.S. Treasury yield curve in effect at the time of grant for the expected term of the option. The Company determines the expected dividend yield percentage by dividing the expected annual dividend by...

  • Page 95
    ... compensation plans were insignificant. 5. BUSINESS ACQUISITIONS Insight Acquisition On February 29, 2012, TWC completed its acquisition of Insight Communications Company, Inc. and its subsidiaries ("Insight") for $1.339 billion in cash, net of cash acquired and including a third-quarter 2012...

  • Page 96
    ... and equipment. The DCF approach was based upon management's estimates of future cash flows and a discount rate consistent with the inherent risk of each of the acquired assets. Other Acquisitions Additionally, during 2011, TWC completed two acquisitions of cable systems in Texas and Ohio serving...

  • Page 97
    ..., the cable companies have the option to offer wireless service under their own brands utilizing Verizon Wireless' network, although the Company currently has no plans to offer such service. In addition, the cable companies and Verizon Wireless have formed an innovation technology joint venture...

  • Page 98
    ... sale of its spectrum licenses. 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 of assets related to the provision of wireless service that would no longer be utilized...

  • Page 99
    ...'s reporting units. This process included a review of the Company's most recent long-range projections, analysis of operating results versus the prior year, changes in market values, changes in discount rates and changes in terminal growth rate assumptions. 8. DEBT TWC's debt as of December 31, 2012...

  • Page 100
    ... Form S-3 with the Securities and Exchange Commission ("SEC") that allows TWC to offer and sell from time to time a variety of securities. TWC has issued notes and debentures (the "TWC Notes and Debentures") publicly in a number of offerings. Prior to September 30, 2012, TWC's obligations under the...

  • Page 101
    ... internal reorganization, as of September 30, 2012, TWCE's obligations under the TWCE Notes and Debentures are guaranteed by TWC, TW NY and TWC Internet Holdings II (collectively the "TWCE Debt Guarantors"). TWCE has no obligation to file separate reports with the SEC under the Securities Exchange...

  • Page 102
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) events of default. In connection with the internal reorganization discussed further in Note 20, on, and effective as of, September 30, 2012, the Company, TWCE, TW NY, TWC Internet Holdings II and The Bank of New York ...

  • Page 103
    ... 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 at an annual rate equal to...

  • Page 104
    ... rate swaps to manage interest rate risk by effectively converting fixed-rate debt into variable-rate debt. Under such contracts, the Company is entitled to receive semi-annual interest payments at fixed rates and is required to make semi-annual interest payments at variable rates, without exchange...

  • Page 105
    ...loss, net, to cost of revenue. Any ineffectiveness related to the Company's cash flow hedges has been and is expected to be immaterial. Equity Award Reimbursement Obligation Prior to 2007, some of TWC's employees were granted options to purchase shares of Time Warner common stock in connection with...

  • Page 106
    ... the Company's annual impairment testing. 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 107
    ... negotiated transactions. The size and timing of the Company's purchases under the Stock Repurchase Program are based on a number of factors, including business and market conditions, financial capacity and TWC's common stock price. On January 25, 2012, the Company's Board of Directors increased...

  • Page 108
    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 2012, 2011 and 2010 as follows (in millions, except per share data): 2012 Per Share Amount Per ...

  • Page 109
    ... made under the Company's 2006 Stock Incentive Plan. As of December 31, 2012, the 2011 Plan provides for the issuance of up to 20.0 million shares of TWC common stock, of which 15.5 million shares were available for grant. Equity-based compensation expense and the related tax benefit recognized for...

  • Page 110
    ... 11, 2009 of TWC's Class A common stock and Class B common stock (the "Special Dividend"). In connection with the Special Dividend, holders of RSUs could elect to receive the retained distribution on their RSUs related to the Special Dividend (the "Special Dividend Retained Distribution") in the...

  • Page 111
    ...in years) ...Risk-free rate ...Expected dividend yield ... 30.03% 6.43 1.35% 2.91% 31.19% 6.42 2.80% 2.66% 31.39% 6.73 3.06% 3.54% The following table summarizes information about stock options that were outstanding as of December 31, 2012: WeightedAverage Exercise Price WeightedAverage Remaining...

  • Page 112
    ... options to purchase approximately 2.4 million shares of TWC common stock under the 2011 Plan, of which 283,000 were PBOs. 14. EMPLOYEE BENEFIT PLANS Pension Plans TWC sponsors two qualified defined benefit pension plans - Time Warner Cable Pension Plan (the "TWC Pension Plan") and Time Warner Cable...

  • Page 113
    ... of high-quality corporate bonds. Weighted-average assumptions used to determine net periodic benefit cost for the years ended December 31, 2012, 2011 and 2010 were as follows: 2012 2011 2010 Expected long-term return on plan assets ...Discount rate ...Rate of compensation increase ... 7.75% 5.21...

  • Page 114
    ... portfolio's composition, past average rate of earnings, discussions with portfolio managers and the Company's asset allocation targets. The weighted-average expected long-term return on plan assets used to determine net periodic benefit cost for the year ended December 31, 2013 is expected to be...

  • Page 115
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) The following tables set forth the investment assets of the qualified pension plans, which exclude accrued investment income and accrued liabilities, by level within the fair value hierarchy as of December 31, 2012 and ...

  • Page 116
    ... those in limited partnerships that invest in operating companies that are not publicly traded on a stock exchange, and hedge funds. Private equity investments are valued using inputs such as trading multiples of comparable public securities, merger and acquisition activity and pricing data from the...

  • Page 117
    ... interest rates, asset performance, the funded status of the qualified pension plans and management's judgment. For the nonqualified pension plan, the Company contributed $4 million during 2012 and will continue to make contributions in 2013 to the extent benefits are paid. Benefit payments for...

  • Page 118
    ... the Company incurred merger-related costs of $10 million in connection with the acquisitions of NaviSite, the NewWave cable systems and Insight. Information relating to merger-related costs incurred is as follows (in millions): Employee Termination Costs Other Costs Total Costs incurred ...$ Cash...

  • Page 119
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Restructuring Costs Beginning in the first quarter of 2009, the Company began a restructuring to improve operating efficiency, primarily related to employee terminations and other exit costs. Through December 31, 2012, the...

  • Page 120
    ... 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 liability was required. As a result, TWC recorded a noncash income tax benefit of $178 million during the fourth quarter of...

  • Page 121
    ... of TWC's deferred income tax liabilities, net, as of December 31, 2012 and 2011 are as follows (in millions): December 31, 2012 2011 Cable franchise rights and customer relationships, net(a) ...$ Property, plant and equipment ...Other ...Deferred income tax liabilities ...Net operating loss...

  • Page 122
    ... the cable industry under discussion with the Internal Revenue Service ("IRS") and (ii) $19 million related to various ongoing audits and settlement discussions with the IRS and various state and local jurisdictions. If the Company were to recognize the benefits of these uncertain income tax...

  • Page 123
    ...TWE were transferred to Time Warner and all of Time Warner's interests in cable systems were transferred to the Company (the "TWE Restructuring"). Prior to the TWE Restructuring, TWE had various contingent commitments, including guarantees, related to the TWE non-cable businesses. In connection with...

  • Page 124
    ... nonqualified pension plan, the Company contributed $4 million during 2012 and will continue to make contributions in 2013 to the extent benefits are paid. Legal Proceedings The Company is the defendant in In re: Set-Top Cable Television Box Antitrust Litigation, ten purported class actions filed in...

  • Page 125
    ..., et al. v. Time Warner Cable Inc., filed an amended complaint in a purported class action in the 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. The plaintiffs...

  • Page 126
    ... from the FTC. On February 12, 2013, TWC received a supplemental CID from the FTC, requesting additional information about how the Company informs customers who, based on a review of their credit scores, are required to pay a deposit or make an advance payment. The FTC has not specified the penalty...

  • Page 127
    ... 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. 19. ADDITIONAL FINANCIAL INFORMATION Other Current Liabilities Other current liabilities as of December 31, 2012...

  • Page 128
    ... of the Parent Company (the "Non-Guarantor Subsidiaries") on a combined basis and (iv) the eliminations necessary to arrive at the information for Time Warner Cable Inc. on a consolidated basis. TW NY is a direct 100% owned subsidiary of the Parent Company. TWCE and TWC Internet Holdings II...

  • Page 129
    ... owned subsidiaries of the Parent Company. The Guarantor Subsidiaries have fully and unconditionally, jointly and severally, directly, guaranteed the debt securities issued by the Parent Company in its 2007 registered exchange offer and subsequent public offerings. The Parent Company owns all of the...

  • Page 130
    ... 31, 2012 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations ASSETS Current assets: Cash and equivalents ...$ Short-term investments in U.S. Treasury securities ...Receivables, net ...Receivables from affiliated parties ...Deferred income tax assets...

  • Page 131
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Balance Sheet as of December 31, 2011 (recast) Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations ASSETS Current assets: Cash and equivalents ...$ Receivables, net...

  • Page 132
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended December 31, 2012 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Revenue ...$ Costs and expenses: Cost of revenue ...

  • Page 133
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended December 31, 2011 (recast) Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Revenue ...$ Costs and expenses: Cost of ...

  • Page 134
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Operations for the Year Ended December 31, 2010 (recast) Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Revenue ...$ Costs and expenses: Cost of ...

  • Page 135
    TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued) Consolidating Statement of Cash Flows for the Year Ended December 31, 2012 Parent Company Guarantor Subsidiaries NonGuarantor Subsidiaries TWC Consolidated Eliminations Cash provided (used) by operating activities ...$ ...

  • Page 136
    ... in acquisitions ...Debt issuance costs ...Proceeds from exercise of stock options ...Taxes paid in cash in lieu of shares issued for equity-based compensation ...Excess tax benefit from equity-based compensation ...Dividends paid ...Repurchases of common stock ...Net change in investments in and...

  • Page 137
    ...-term debt ...Debt issuance costs ...Proceeds from exercise of stock options ...Taxes paid in cash in lieu of shares issued for equity-based compensation ...Excess tax benefit from equity-based compensation ...Dividends paid ...Repurchases of common stock ...Net change in investments in and amounts...

  • Page 138
    ... effectiveness of the Company's system of internal control over financial reporting as of December 31, 2012 based on the framework set forth in "Internal Control-Integrated Framework" issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on its evaluation, management...

  • Page 139
    ...Public Company Accounting Oversight Board (United States), Time Warner Cable Inc.'s internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission...

  • Page 140
    ...Warner Cable Inc.'s (the "Company") internal control over financial reporting as of December 31, 2012, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "COSO criteria"). The Company's management...

  • Page 141
    ...loss) attributable to TWC shareholders ...$ Net income (loss) per common share attributable to TWC common shareholders: Basic ...$ Diluted ...$ Average common shares outstanding: Basic ...Diluted ...Cash dividends declared per share ...$ Special cash dividend declared and paid per share ...$ 21,386...

  • Page 142
    ... 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 liability was required. As a result, TWC recorded a noncash income tax benefit of $178 million during the fourth quarter of...

  • Page 143
    ... million related to a 65 basis point change in the estimate of the effective tax rate applied to calculate the Company's net deferred income tax liability and (ii) a $60 million impairment charge on wireless assets that will no longer be utilized. Per common share amounts for the quarters and full...

  • Page 144
    ...Agreement and Plan of Merger, dated as of August 15, 2011, by and among Time Warner Cable Inc. ("TWC" or the "Company"), Derby Merger Sub Inc., Insight Communications Company, Inc. and Carlyle CIM Agent, L.L.C. (incorporated herein by reference to Exhibit 2 to the Company's Quarterly Report on Form...

  • Page 145
    ... to Time Warner's Current Report on Form 8-K dated and filed November 2, 2006 (File No. 1-15062)). Twelfth Supplemental Indenture, dated as of September 30, 2012, among Time Warner Cable Enterprises LLC ("TWCE"), the Company, TW NY, Time Warner Cable Internet Holdings II LLC ("TWC Internet Holdings...

  • Page 146
    ...to the Company's Current Report on Form 8-K dated and filed with the SEC on June 27, 2012). Amended and Restated Agreement of Limited Partnership of TWE, dated as of March 31, 2003, by and among the Company, TWE Holdings I Trust ("Comcast Trust I"), ATC, Comcast Corporation and Time Warner (the "TWE...

  • Page 147
    ... reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2008 (the "TWC June 30, 2008 Form 10-Q")). Second Amended and Restated Tax Matters Agreement, dated May 20, 2008, between the Company and Time Warner (incorporated herein by reference to Exhibit...

  • Page 148
    ... to the TWC 2012 Form 10-K). Employment Agreement, effective as of February 16, 2012, between Time Warner Cable Inc. and Marc Lawrence-Apfelbaum (incorporated herein by reference to Exhibit 10 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2012 and filed with the SEC...

  • Page 149
    ...SEC on April 6, 2011). Time Warner Cable Inc. 2012 Annual Bonus Plan (incorporated by reference to Annex A to the Company's definitive Proxy Statement dated April 3, 2012 and filed with the SEC on April 3, 2012). Form of Non-Qualified Stock Option Agreement, used through 2009 (incorporated herein by...

  • Page 150
    ... 101 The following financial information from the Company's Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on February 15, 2013, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheet as of December 31, 2012 and December 31, 2011...

  • Page 151
    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 Inno vati o ativ e n Tea mw ork Initi grit y Inte nce usio Incl n Com mu nity Exc elle

  • Page 152
    ..., Business Advisor & Managing Director, Lardon & Associates LLC Investor, Media, Entertainment & Sports Former Chairman, Media & Communications Group, Time Warner Inc. Investor Lead Director, Time Warner Cable Inc. Former Executive Vice President & Chief Financial Officer, Time Warner Inc. President...

  • Page 153
    ... Warner Cable inC. ConTaCT inFormaTion Time Warner Cable Inc. 60 Columbus Circle New York, NY 10023 212-364-8200 www.twc.com inveSTor relaTionS Time Warner Cable Inc. 877-4 INFO-TWC [email protected] meDia anD preSS CommuniCaTionS Time Warner Cable Inc. 212-364-8200 Caution Concerning Forward-looking...

  • Page 154
    Time Warner Cable Inc. 60 Columbus Circle New York, NY 10023 212.364.8200 www.twc.com NYSE: TWC