Time Warner Cable 2012 Annual Report Download - page 106

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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
11. 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, 2012 and 2011
were as follows (in millions):
December 31, 2012 December 31, 2011
Fair Value Measurements Fair Value Measurements
Fair Value Level 2 Level 3 Fair Value Level 2 Level 3
Assets:
Interest rate swaps ...............$ 295 $ 295 $ — $ 297 $ 297 $ —
Cross-currency swaps ............ 112 112————
Total .........................$ 407 $ 407 $ — $ 297 $ 297 $ —
Liabilities:
Interest rate swaps ...............$ 1 $ 1 $ — $ — $ — $ —
Cross-currency swaps ............ ———6767—
Equity award reimbursement
obligation ................... 19 — 19 22 — 22
Total .........................$ 20 $ 1 $ 19 $ 89 $ 67 $ 22
The fair value of interest rate swaps, classified as Level 2, utilized a DCF analysis based on the terms of the contract and
expected forward interest rates, and incorporates the credit risk of the Company and each counterparty. The fair value of
cross-currency swaps, classified as Level 2, utilized a DCF analysis based on expected 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 option pricing model to determine the estimated weighted-average
fair value of Time Warner stock options outstanding, which was $11.53 per option as of December 31, 2012. The weighted-
average assumptions used in the Black-Scholes model were as follows: expected volatility of Time Warner common stock of
22.17%, expected term of 0.82 years, risk-free rate of 0.16% and expected dividend yield of 2.22%.
Changes in the fair value of the equity award reimbursement obligation, valued using significant unobservable inputs
(Level 3), from January 1 through December 31 are presented below (in millions):
2012 2011 2010
Balance at beginning of year ..........................................$ 22 $ 20 $ 35
(Gains) losses recognized in other income (expense), net .................... 9 5 (5)
Payments to Time Warner for awards exercised ........................... (12) (3) (10)
Balance at end of year ................................................
$ 19 $ 22 $ 20
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 as of July 1
for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the asset be recorded at
its fair value. Refer to Note 7 for further details regarding the results of 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. Refer to Note 6 for further details.
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