Time Warner Cable 2014 Annual Report Download - page 31

increases. Any increase in TWC’s pole attachment rates or inability to secure continued pole attachment agreements with
these cooperatives or municipal utilities on commercially reasonable terms could cause TWC’s business, financial results
or financial condition to suffer.
The IRS (as defined below) and state and local tax authorities may challenge the tax characterizations of the Adelphia
Acquisition, the Redemptions and the Exchange (each as defined below), or TWC’s related valuations, and any
successful challenge by the IRS or state or local tax authorities could materially adversely affect TWC’s tax profile,
significantly increase TWC’s future cash tax payments and significantly reduce TWC’s future earnings and cash flow.
The 2006 acquisition by TW NY Cable Holding Inc. (“TW NY”) and Comcast of assets comprising in aggregate
substantially all of the cable assets of Adelphia Communications Corporation (the “Adelphia Acquisition”) was designed
to be a fully taxable asset sale, the redemption by TWC of Comcast’s interests in TWC (the “TWC Redemption”) was
designed to qualify as a tax-free split-off under section 355 of the Internal Revenue Code of 1986, as amended (the “Tax
Code”), the redemption by TWE of Comcast’s interests in TWE (the “TWE Redemption” and collectively with the TWC
Redemption, the “Redemptions”) was designed as a redemption of Comcast’s partnership interest in TWE, and the
exchange between TW NY and Comcast immediately after the Adelphia Acquisition (the “Exchange”) was designed as an
exchange of designated cable systems. There can be no assurance, however, that the Internal Revenue Service (the “IRS”)
or state or local tax authorities (collectively with the IRS, the “Tax Authorities”) will not challenge one or more of such
characterizations or TWC’s related valuations. Such a successful challenge by the Tax Authorities could materially
adversely affect TWC’s tax profile (including TWC’s ability to recognize the intended tax benefits from these
transactions), significantly increase TWC’s future cash tax payments and significantly reduce TWC’s future earnings and
cash flow. The tax consequences of the Adelphia Acquisition, the Redemptions and the Exchange are complex and, in
many cases, subject to significant uncertainties, including, but not limited to, uncertainties regarding the application of
federal, state and local income tax laws to various transactions and events contemplated therein and regarding matters
relating to valuation.
If the Separation Transactions (as defined below), including the Distribution (as defined below), do not qualify as tax-
free, either as a result of actions taken or not taken by TWC or as a result of the failure of certain representations by
TWC to be true, TWC has agreed to indemnify Time Warner Inc. for its taxes resulting from such disqualification,
which would be significant.
As part of TWC’s separation from Time Warner Inc. (“Time Warner”) in March 2009 (the “Separation”), Time
Warner received a private letter ruling from the IRS and Time Warner and TWC received opinions of tax counsel
confirming that the transactions undertaken in connection with the Separation, including the transfer by a subsidiary of
Time Warner of its 12.43% non-voting common stock interest in TW NY 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 of TWC’s
outstanding Class A and Class B common stock, the conversion of each share of TWC’s outstanding Class A and Class B
common stock into one share of TWC common stock, and the pro-rata dividend of all shares of TWC common stock held
by Time Warner to holders of record of Time Warner’s common stock (the “Distribution” and, together with all of the
transactions, the “Separation Transactions”), should generally qualify as tax-free to Time Warner and its stockholders for
U.S. federal income tax purposes. The ruling and opinions rely on certain facts, assumptions, representations and
undertakings from Time Warner and TWC regarding the past and future conduct of the companies’ businesses and other
matters. If any of these facts, assumptions, representations or undertakings are incorrect or not otherwise satisfied, Time
Warner and its stockholders may not be able to rely on the ruling or the opinions and could be subject to significant tax
liabilities. Notwithstanding the private letter ruling and opinions, the IRS could determine on audit that the Separation
Transactions should be treated as taxable transactions if it determines that 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.
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