Time Warner Cable 2012 Annual Report Download - page 105

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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
Cash Flow Hedges
The Company uses cross-currency swaps to manage foreign exchange risk related to foreign currency denominated debt
by effectively converting foreign currency denominated debt, including annual interest payments and the payment of
principal at maturity, to U.S. dollar denominated debt. Such contracts are designated as cash flow hedges. The Company has
entered into cross-currency swaps to effectively convert its £1.275 billion aggregate principal amount of fixed-rate British
pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate
U.S. dollar denominated debt. The cross-currency swaps have maturities extending through July 2042. The following table
summarizes the deferred gain (loss) activity related to cash flow hedges recognized in accumulated other comprehensive loss,
net, during the years ended December 31, 2012 and 2011 (in millions):
Year Ended December 31,
2012 2011 2010
Deferred gains (losses) recognized:
Cross-currency swaps ..............................................$ 179 $ (67) $ —
Other cash flow hedges ............................................. — (4) 8
Total deferred gains (losses) recognized ............................... 179 (71) 8
Deferred (gains) losses reclassified to income:
Cross-currency swaps(a) ............................................ (76) 41 —
Other cash flow hedges(b) ........................................... — — (2)
Total deferred (gains) losses reclassified ............................... (76) 41 (2)
Total net deferred gains (losses) recognized .............................. 103 (30) 6
Income tax (provision) benefit ......................................... (40) 12 (2)
Total net deferred gains (losses) recognized, net of tax ......................$ 63 $ (18) $ 4
(a) Deferred gains (losses) on cross-currency swaps were reclassified from accumulated other comprehensive loss, net, to other income (expense), net,
which offsets the re-measurement gains (losses) recognized in other income (expense), net, on the British pound sterling denominated debt.
(b) Deferred gains on other cash flow hedges (e.g., foreign currency forward contracts) were reclassified from accumulated other comprehensive 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 their past employment with subsidiaries and affiliates of Time Warner, including TWC. Upon the exercise of
Time Warner stock options held by TWC employees, TWC is obligated to reimburse Time Warner for the excess of the
market price of Time Warner common stock on the day of exercise over the option exercise price (the “intrinsic” value of the
award). The Company records the equity award reimbursement obligation at fair value in other current liabilities in the
consolidated balance sheet, which is estimated using the Black-Scholes model. The change in the equity award
reimbursement obligation fluctuates primarily with the fair value and expected volatility of Time Warner common stock and
changes in fair value are recorded in other income (expense), net, in the period of change. As of December 31, 2012, the
weighted-average remaining contractual term of outstanding Time Warner stock options held by TWC employees was 1.04
years. Changes in the fair value of the equity award reimbursement obligation are discussed in Note 11 below.
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