UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-33335

 

TIME WARNER CABLE INC.

(Exact name of registrant as specified in its charter)

Delaware		84-1496755
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

(Address of principal executive offices) (Zip Code)

(Registrant’s telephone number, including area code)

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company o

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ

		Shares Outstanding
Description of Class		as of July 24, 2009
Common Stock – $.01 par value			352,361,613

 

 

TIME WARNER CABLE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION

		Page
PART I. FINANCIAL INFORMATION
Management’s Discussion and Analysis of Results of Operations and Financial Condition			1
Item 4. Controls and Procedures			19
Consolidated Balance Sheet as of June 30, 2009 and December 31, 2008			20
Consolidated Statement of Operations for the Three and Six Months Ended June 30, 2009 and 2008			21
Consolidated Statement of Cash Flows for the Six Months Ended June 30, 2009 and 2008			22
Consolidated Statement of Equity			23
Notes to Consolidated Financial Statements			24
Supplementary Information			43
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			52
Item 1A. Risk Factors			52
Item 4. Submission of Matters to a Vote of Security Holders			52
Item 6. Exhibits			53
EX-31.1 SECTION 302, CERTIFICATION OF THE PEO
EX-31.2 SECTION 302, CERTIFICATION OF THE PFO
EX-32 SECTION 906, CERTIFICATION OF THE PEO AND PFO

MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS

OF OPERATIONS AND FINANCIAL CONDITION

INTRODUCTION

     Management’s discussion and analysis of results of operations and financial condition (“MD&A”) is a supplement to the accompanying consolidated financial statements and provides additional information on Time Warner Cable Inc.’s (together with its subsidiaries, “TWC” or the “Company”) business, current developments, financial condition, cash flows and results of operations. MD&A is organized as follows:

•

Overview. This section provides a general description of TWC’s business, as well as recent developments the Company believes are important in understanding the results of operations and financial condition or in understanding anticipated future trends.

•

Financial statement presentation. This section provides a summary of how the Company’s operations are presented in the accompanying consolidated financial statements.

•

Results of operations. This section provides an analysis of the Company’s results of operations for the three and six months ended June 30, 2009.

•

Financial condition and liquidity. This section provides an analysis of the Company’s financial condition as of June 30, 2009 and cash flows for the six months ended June 30, 2009.

•

Market risk management. This section discusses how the Company monitors and manages exposure to certain potential gains and losses arising from changes in market rates and prices, such as interest rates. Refer to the Company’s Current Report on Form 8-K dated, and filed with the Securities and Exchange Commission (the “SEC”) on, June 24, 2009 (the “June 2009 Form 8-K”), which recasts certain information in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, for a discussion of additional market risks applicable to the Company.

•

Caution concerning forward-looking statements. This section provides a description of the use of forward-looking information appearing in this report, including in MD&A and the consolidated financial statements. Such information is based on management’s current expectations about future events, which are inherently susceptible to uncertainty and changes in circumstances. Refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008 (the “2008 Form 10-K”) for a discussion of the risk factors applicable to the Company.

OVERVIEW

     TWC is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas – New York State (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. As of June 30, 2009, TWC served approximately 14.7 million residential and commercial customers who subscribed to one or more of its video, high-speed data and voice services, which totaled approximately 26.2 million primary service units and approximately 35.0 million revenue generating units (each as defined in “Results of Operations”).

     As of December 31, 2008, Time Warner Inc. (“Time Warner”) owned approximately 84% of the common stock of TWC (representing a 90.6% voting interest), and also owned an indirect 12.43% non-voting common stock interest in TW NY Cable Holding Inc. (“TW NY”), a subsidiary of TWC. Additionally, the financial results of TWC were consolidated by Time Warner. As discussed further in “—Recent Developments,” on March 12, 2009, TWC completed its separation from Time Warner. As a result of the separation, Time Warner no longer has an ownership interest in TWC.

     TWC principally offers three services – video, high-speed data and voice – over its broadband cable systems. TWC markets its services separately and in “bundled” packages of multiple services and features. As of June 30, 2009, 56% of TWC’s customers subscribed to two or more of its primary services, including 23% of its customers who subscribed to all three primary services. In addition to its residential services, TWC offers commercial customers video, high-speed data, voice and networking and transport services. TWC believes providing commercial services will generate additional opportunities for growth. In addition, TWC sells advertising to a variety of national, regional and local advertising customers.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Video is TWC’s largest service in terms of revenues generated and, as of June 30, 2009, TWC had approximately 13.0 million video subscribers, of which approximately 8.8 million received video service via digital transmissions. TWC expects to continue to increase video revenues through the offering of digital video services, including related equipment rentals, as well as through price increases; however, the rate of revenue growth is dependent on a number of factors, including subscriber and penetration levels, competition and the state of the economy. Video programming costs represent a major component of TWC’s expenses and are expected to continue to increase, reflecting programming rate increases on existing services, costs associated with retransmission consent agreements, digital video subscriber growth and the expansion of service offerings (e.g., new network channels). TWC expects that its video service margins as a percentage of video revenues will continue to decline over the next few years as increases in programming costs outpace growth in video revenues.

     As of June 30, 2009, TWC had approximately 8.8 million residential high-speed data subscribers. TWC expects continued growth in residential high-speed data subscribers and revenues for the foreseeable future; however, future high-speed data subscriber and revenue growth rates will depend on high-speed data penetration levels, competition, pricing and the state of the economy. TWC also offers commercial high-speed data services and had 289,000 commercial high-speed data subscribers as of June 30, 2009.

     As of June 30, 2009, TWC had approximately 4.0 million residential Digital Phone subscribers. TWC expects increases in Digital Phone subscribers and revenues for the foreseeable future; however, future Digital Phone subscriber and revenue growth rates will depend on Digital Phone penetration levels, competition, pricing, the rate of wireless substitution of wireline phone service and the state of the economy. TWC also offers its commercial Digital Phone service, Business Class Phone, in nearly all of its operating areas and had 48,000 commercial Digital Phone subscribers as of June 30, 2009.

     TWC faces intense competition from a variety of alternative information and entertainment delivery sources, principally from direct-to-home satellite video providers and certain telephone companies, each of which offers a broad range of services that provide features and functions comparable to those provided by TWC. The services are also offered in bundles of video, high-speed data and voice services similar to TWC’s and, in certain cases, these offerings include wireless services. The availability of these bundled service offerings and of wireless offerings, whether as a single offering or as part of a bundle, has intensified competition. In addition, technological advances and product innovations have increased and will likely continue to increase the number of alternatives available to TWC’s customers from other providers and intensify the competitive environment, which may negatively affect the growth of revenue generating units.

     Since the end of the third quarter of 2008, the Company has experienced a slowdown in growth across all revenue generating unit categories, which the Company believes is partly a result of a challenging economic environment and a related reduction in consumer spending. The impact of a protracted economic downturn on the Company’s financial and subscriber results is difficult to estimate; however, the Company believes that the slower growth in revenue generating units and the lower growth or declines in other video services (e.g., digital video recorders, premium channels and transactional video-on-demand) experienced during the first half of 2009 will result in lower revenue growth for the full year of 2009. In addition, the Company expects that Advertising revenues will decline in the second half of 2009 as compared to the second half of 2008 due to lower political advertising revenues and continued weakness in Advertising revenues from national, regional and local businesses.

     The Company believes it continues to have strong liquidity to meet its needs for the foreseeable future. As of June 30, 2009, the Company had approximately $4.4 billion of unused committed capacity (including cash and equivalents). Additionally, there are no significant maturities of the Company’s long-term debt prior to February 2011. See “Financial Condition and Liquidity” for further details regarding the Company’s committed capacity.

     During the first quarter of 2009, TWC began a significant restructuring, primarily consisting of headcount reductions. TWC expects to incur total restructuring charges of approximately $75 million during 2009, including $50 million incurred during the first half of 2009.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Recent Developments

Separation from Time Warner, Recapitalization and TWC Reverse Stock Split

     On March 12, 2009, the separation of TWC from Time Warner was completed pursuant to a Separation Agreement dated as of May 20, 2008 (the “Separation Agreement”) between TWC and its subsidiaries, Time Warner Entertainment Company, L.P. (“TWE”) and TW NY, and Time Warner and its subsidiaries, Warner Communications Inc. (“WCI”), Historic TW Inc. (“Historic TW”) and American Television and Communications Corporation (“ATC”). In accordance with the Separation Agreement, on February 25, 2009, Historic TW transferred its 12.43% non-voting common stock interest in TW NY to TWC in exchange for 80 million newly issued shares (approximately 27 million shares after giving effect to the 1-for-3 reverse stock split discussed below) of TWC’s Class A common stock (the “TW NY Exchange”). On March 12, 2009, TWC paid a special cash dividend of $10.27 per share ($30.81 per share after giving effect to the 1-for-3 reverse stock split, aggregating $10.856 billion) to holders of record on March 11, 2009 of TWC’s outstanding Class A common stock and Class B common stock, which included Time Warner (the “Special Dividend”). Following the receipt by Time Warner of its share of the Special Dividend, TWC filed with the Secretary of State of the State of Delaware an amended and restated certificate of incorporation, pursuant to which, among other things, each outstanding share of TWC Class A common stock (including the shares of Class A common stock issued in the TW NY Exchange) and TWC Class B common stock was automatically converted (the “Recapitalization”) into one share of common stock, par value $0.01 per share (the “TWC Common Stock”). After the Recapitalization, TWC’s separation from Time Warner (the “Separation”) was effected as a 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 “Spin-Off Dividend” or the “Distribution”) as of 8:00 pm on March 12, 2009, the record date for the Spin-Off Dividend. On March 12, 2009, Time Warner deposited its shares of TWC Common Stock with an agent and, at the record date for the Spin-Off Dividend, was deemed to no longer beneficially own such shares. On March 27, 2009, the distribution date for the Spin-Off Dividend, all of these shares of TWC Common Stock were distributed. The TW NY Exchange, the Special Dividend, the Recapitalization, the Separation and the Distribution collectively are referred to as the “Separation Transactions.”

     To pay a portion of the Special Dividend, on March 12, 2009, TWC borrowed (i) the full committed amount of $1.932 billion under its 364-day senior unsecured term loan facility (the “2008 Bridge Facility”) and (ii) approximately $3.3 billion under its senior unsecured five-year revolving credit facility (the “Revolving Credit Facility”). The Company funded the remainder of the Special Dividend with approximately $5.6 billion of cash on hand. See “—2009 Bond Offerings and Termination of Lending Commitments” below for further details regarding the termination of the 2008 Bridge Facility.

     In connection with the Separation Transactions, on March 12, 2009, the Company implemented a reverse stock split of the TWC Common Stock (the “TWC reverse stock split”) at a 1-for-3 ratio, effective immediately after the Recapitalization. The shares of TWC Common Stock distributed in the Spin-Off Dividend gave effect to both the Recapitalization and the TWC reverse stock split.

     During the three and six months ended June 30, 2009 and 2008, the Company incurred pretax costs related to the Separation, which have been reflected in the Company’s consolidated statement of operations as follows (in millions):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Other expense, net		$	1			$	10			$	28			$	12
Interest expense, net			—				31				13				31
Pretax costs related to the Separation		$	1			$	41			$	41			$	43

     In the table above, other expense, net, consists of direct transaction costs (e.g., legal and professional fees) and interest expense, net, consists of debt issuance costs. The debt issuance costs for the six months ended June 30, 2009 primarily relate to the portion of the upfront loan fees for the 2008 Bridge Facility that was expensed due to the repayment of all borrowings outstanding under, and the resulting termination of, such facility with a portion of the net proceeds of the March 2009 Bond Offering (as defined below).

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

2009 Bond Offerings and Termination of Lending Commitments

     On March 26, 2009, TWC issued $3.0 billion in aggregate principal amount of senior unsecured notes (the “March 2009 Bond Offering”) and, on June 29, 2009, TWC issued $1.5 billion in aggregate principal amount of senior unsecured debentures (the “June 2009 Bond Offering” and, together with the March 2009 Bond Offering, the “2009 Bond Offerings”) under a shelf registration statement on Form S-3 filed during 2008 (the “Shelf Registration Statement”) with the SEC that allows TWC to offer and sell from time to time senior and subordinated debt securities and debt warrants. The March 2009 Bond Offering consisted of $1.0 billion principal amount of 7.50% notes due 2014 and $2.0 billion principal amount of 8.25% notes due 2019. The June 2009 Bond Offering consisted of $1.5 billion principal amount of 6.75% debentures due 2039. TWC’s obligations under the debt securities issued in the 2009 Bond Offerings are guaranteed by TWE and TW NY.

     The Company used $1.934 billion of the net proceeds from the March 2009 Bond Offering to repay all of the borrowings outstanding under the 2008 Bridge Facility, as well as accrued interest and commitment fees, and such facility was terminated by the parties thereto in accordance with its terms. Additionally, as a result of the March 2009 Bond Offering and the termination of the 2008 Bridge Facility, the Company terminated Time Warner’s commitment (as lender) under a two-year $1.535 billion senior unsecured supplemental term loan facility, and the credit agreement governing such facility was terminated in accordance with its terms. The Company used the remaining net proceeds from the March 2009 Bond Offering to repay a portion of the borrowings outstanding under the Revolving Credit Facility.

     The Company used the net proceeds of $1.444 billion from the June 2009 Bond Offering, as well as $1 million of cash on hand, to repay a portion of the $3.045 billion outstanding indebtedness under its five-year term loan facility, which reduced the outstanding indebtedness under such facility to $1.6 billion.

     See Note 4 to the accompanying consolidated financial statements for further details regarding the 2009 Bond Offerings.

FINANCIAL STATEMENT PRESENTATION

Revenues

     The Company’s revenues consist of Subscription and Advertising revenues. Subscription revenues consist of revenues from video, high-speed data and voice services.

     Video revenues include subscriber fees for any tier of video service from both residential and commercial subscribers. Video revenues from digital services, or digital video revenues, include revenues from digital tiers, premium channels, transactional video-on-demand (e.g., events, movies and pay-per-view) and digital video recorder services. Video revenues also include related equipment rental charges, installation charges and franchise fees collected on behalf of local franchising authorities. Several ancillary items are also included within video revenues, such as commissions earned on the sale of merchandise by home shopping services and rental income earned on the leasing of antenna attachments on transmission towers owned by the Company.

     High-speed data revenues include subscriber fees from both residential and commercial subscribers, along with related home networking fees and installation charges. Additionally, high-speed data revenues include fees received from certain distributors of TWC’s Road Runner^TM high-speed data service (including cable systems managed by the Advance/Newhouse Partnership). High-speed data revenues also include fees paid to TWC by the Advance/Newhouse Partnership for managing certain functions for the Advance/Newhouse Partnership, including, among others, programming and engineering. In addition, high-speed data revenues include fees received from third-party internet service providers whose on-line services are provided to some of TWC’s customers and revenues generated by the sale of commercial networking and transport services (e.g., cellular backhaul).

     Voice revenues include subscriber fees from residential and commercial Digital Phone subscribers, along with related installation charges.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Advertising revenues primarily include the fees charged to local, regional and national advertising customers for advertising placed on the Company’s video and high-speed data services. Nearly all Advertising revenues are attributable to advertising placed on the Company’s video service.

Costs and Expenses

     Costs of revenues include the following costs directly associated with the delivery of services to subscribers or the maintenance of the Company’s delivery systems: video programming costs; high-speed data connectivity costs and certain high-speed data customer care support service costs; voice network costs; other service-related expenses, including non-administrative labor; franchise fees; and other related costs.

     Selling, general and administrative expenses include amounts not directly associated with the delivery of services to subscribers or the maintenance of the Company’s delivery systems, such as administrative labor costs, marketing expenses, billing system charges, non-plant repair and maintenance costs, other administrative overhead costs and, prior to the Separation, fees paid to Time Warner for reimbursement of certain administrative support functions.

Use of Operating Income (Loss) before Depreciation and Amortization and Free Cash Flow

     Operating Income (Loss) before Depreciation and Amortization is a financial measure not calculated and presented in accordance with U.S. generally accepted accounting principles (“GAAP”). The Company defines Operating Income (Loss) before Depreciation and Amortization as Operating Income (Loss) before depreciation of tangible assets and amortization of intangible assets. Management utilizes Operating Income (Loss) before Depreciation and Amortization, among other measures, in evaluating the performance of the Company’s business because Operating Income (Loss) before Depreciation and Amortization eliminates the uneven effect across its business of considerable amounts of depreciation of tangible assets and amortization of intangible assets recognized in business combinations. Additionally, management utilizes Operating Income (Loss) before Depreciation and Amortization because it believes this measure provides valuable insight into the underlying performance of the Company’s individual cable systems by removing the effects of items that are not within the control of local personnel charged with managing these systems such as net income (loss) attributable to noncontrolling interests, income tax benefit (provision), other income (expense), net, and interest expense, net. In this regard, Operating Income (Loss) before Depreciation and Amortization is a significant component of measures used in the Company’s annual incentive compensation programs.

     A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company’s business. To compensate for this limitation, management evaluates the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budget variances, investment spending levels and return on capital analyses. Another limitation of this measure is that it does not reflect the significant costs borne by the Company for income taxes, debt servicing costs, the share of Operating Income (Loss) before Depreciation and Amortization related to noncontrolling interests, the results of the Company’s equity investments or other non-operational income or expense. Management compensates for this limitation through other financial measures such as a review of net income (loss) attributable to TWC and net income (loss) attributable to TWC per common share.

     Free Cash Flow is a non-GAAP financial measure. The Company defines Free Cash Flow as cash provided by operating activities (as defined under GAAP) plus excess tax benefits from the exercise of stock options, less cash provided by (used by) discontinued operations, capital expenditures, cash paid for other intangible assets, partnership distributions and principal payments on capital leases. Management uses Free Cash Flow to evaluate the Company’s business. The Company believes this measure is an important indicator of its liquidity, including its ability to reduce net debt and make strategic investments, because it reflects the Company’s operating cash flow after considering the significant capital expenditures required to operate its business. A limitation of this measure, however, is that it does not reflect payments made in connection with investments and acquisitions, which reduce liquidity. To compensate for this limitation, management evaluates such expenditures through other financial measures such as return on investment analyses.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Both Operating Income (Loss) before Depreciation and Amortization and Free Cash Flow should be considered in addition to, not as a substitute for, the Company’s Operating Income (Loss), net income (loss) attributable to TWC and various cash flow measures (e.g., cash provided by operating activities), as well as other measures of financial performance and liquidity reported in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies. A reconciliation of Operating Income (Loss) before Depreciation and Amortization to Operating Income (Loss) is presented under “Results of Operations.” A reconciliation of Free Cash Flow to cash provided by operating activities is presented under “Financial Condition and Liquidity.”

RESULTS OF OPERATIONS

Changes in Basis of Presentation

Noncontrolling Interests

     In December 2007, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“Statement”) No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51 (“FAS 160”). The provisions of FAS 160 establish accounting and reporting standards for the noncontrolling interest in a subsidiary, including the accounting treatment upon the deconsolidation of a subsidiary. The provisions of FAS 160 became effective for TWC on January 1, 2009 and have been applied prospectively, except for the provisions related to the presentation of noncontrolling interests, which have been applied retrospectively for all periods presented. During the first quarter of 2009, noncontrolling interests of $1.110 billion as of December 31, 2008 were reclassified to a component of total equity in the accompanying consolidated balance sheet. For the three and six months ended June 30, 2008, minority interest expense of $46 million and $87 million, respectively ($28 million and $52 million, respectively, net of tax), is excluded from net income in the accompanying consolidated statement of operations. Net income attributable to TWC per common share for prior periods is not impacted.

Reverse Stock Split

     In connection with the Separation Transactions, on March 12, 2009, the Company implemented the TWC reverse stock split at a 1-for-3 ratio. The Company has recast the presentation of share and per share data in the prior year financial statements to reflect the TWC reverse stock split.

Reclassifications

     Certain reclassifications have been made to the prior year’s financial information to conform to the June 30, 2009 presentation.

Recent Accounting Standards

     See Note 2 to the accompanying consolidated financial statements for other accounting standards adopted in 2009 and accounting standards not yet adopted.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Three and Six Months Ended June 30, 2009 Compared to Three and Six Months Ended June 30, 2008

     The following discussion provides an analysis of the Company’s results of operations and should be read in conjunction with the accompanying consolidated statement of operations, as well as the consolidated financial statements and notes thereto and MD&A included in the June 2009 Form 8-K.

     Revenues. Revenues by major category were as follows (in millions):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
Subscription:
Video		$	2,706			$	2,636				3	%		$	5,373			$	5,239				3	%
High-speed data			1,123				1,032				9	%			2,224				2,026				10	%
Voice			471				397				19	%			922				763				21	%
Total Subscription			4,300				4,065				6	%			8,519				8,028				6	%
Advertising			174				233				(25	%)			319				430				(26	%)
Total		$	4,474			$	4,298				4	%		$	8,838			$	8,458				4	%

     Selected subscriber-related statistics were as follows (in thousands):

		June 30,
		2009				2008				% Change
Video(a)			13,048				13,297				(2	%)
Residential high-speed data(b)(c)			8,757				8,125				8	%
Commercial high-speed data(b)(c)			289				287				1	%
Residential Digital Phone(c)(d)			4,016				3,421				17	%
Commercial Digital Phone(c)(d)			48				16				200	%
Primary service units(e)			26,158				25,146				4	%
Digital video(f)			8,802				8,483				4	%
Revenue generating units(g)			34,960				33,629				4	%
Customer relationships(h)			14,652				14,737				(1	%)
Double play(i)			4,834				4,760				2	%
Triple play(j)			3,335				2,824				18	%

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Subscription revenues increased as a result of increases in video, high-speed data and voice revenues. The increase in video revenues was primarily due to video price increases and the continued growth of digital video subscribers, which were partially offset by a decrease in basic video subscribers (resulting, in part, from the December 2008 sale of certain non-core cable systems serving 78,000 video subscribers) and a decline in premium channel subscribers. The growth in video revenues for the six months ended June 30, 2009 was also impacted by a decline in transactional video-on-demand revenues. Commercial video revenues were $63 million and $123 million for the three and six months ended June 30, 2009, respectively, compared to $56 million and $115 million for the three and six months ended June 30, 2008, respectively. Additional information regarding the major components of video revenues was as follows (in millions):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
Basic video services		$	1,596			$	1,577				1	%		$	3,171			$	3,128				1	%
Digital video services			659				637				3	%			1,302				1,269				3	%
Equipment rental and installation charges			298				275				8	%			593				544				9	%
Franchise fees			119				116				3	%			237				228				4	%
Other			34				31				10	%			70				70				—
Total		$	2,706			$	2,636				3	%		$	5,373			$	5,239				3	%

     High-speed data revenues increased primarily due to growth in residential high-speed data subscribers and an increase in commercial networking and transport revenues. Commercial high-speed data revenues were $144 million and $284 million for the three and six months ended June 30, 2009, respectively, compared to $130 million and $250 million for the three and six months ended June 30, 2008, respectively.

     The increase in voice revenues was due to growth in Digital Phone subscribers, partially offset by a decrease in average revenues per subscriber. Commercial voice revenues were $16 million and $29 million for the three and six months ended June 30, 2009, respectively, compared to $6 million and $9 million for the three and six months ended June 30, 2008, respectively.

     Average monthly subscription revenues (which includes video, high-speed data and voice revenues) per unit were as follows:

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
Average monthly subscription revenues per:
Video subscriber		$	109.59			$	101.76				8	%		$	108.63			$	100.73				8	%
Customer relationship			97.73				91.89				6	%			97.02				91.06				7	%
Primary service unit			54.90				54.30				1	%			54.78				54.31				1	%
Revenue generating unit			41.08				40.62				1	%			40.98				40.66				1	%

     Advertising revenues decreased primarily due to a decline in Advertising revenues from national, regional and local businesses. The Company expects that Advertising revenues will decline in the second half of 2009 as compared to the second half of 2008 due to lower political advertising revenues and continued weakness in Advertising revenues from national, regional and local businesses.

     Costs of revenues. The major components of costs of revenues were as follows (in millions):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
Video programming		$	1,001			$	939				7	%		$	2,004			$	1,868				7	%
Employee			602				571				5	%			1,221				1,155				6	%
High-speed data			33				37				(11	%)			66				77				(14	%)
Voice			157				134				17	%			309				262				18	%
Video franchise fees			119				116				3	%			237				228				4	%
Other direct operating costs			208				221				(6	%)			410				435				(6	%)
Total		$	2,120			$	2,018				5	%		$	4,247			$	4,025				6	%

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     For the three and six months ended June 30, 2009, costs of revenues increased 5% and 6%, respectively, primarily related to increases in video programming, employee and voice costs. As a percentage of revenues, costs of revenues were 47% for both the three months ended June 30, 2009 and 2008, and were 48% for both the six months ended June 30, 2009 and 2008.

     The increase in video programming costs was primarily due to contractual rate increases and the expansion of service offerings, partially offset by lower costs resulting from a decline in video subscribers and a decline in subscriptions to premium channels. Average programming costs per video subscriber increased 9% to $25.53 per month for the three months ended June 30, 2009 from $23.49 per month for the three months ended June 30, 2008. Average programming costs per video subscriber increased 9% to $25.55 per month for the six months ended June 30, 2009 from $23.43 per month for the six months ended June 30, 2008. The Company expects video programming costs to increase in the second half of 2009 at a rate greater than that experienced during the first half of 2009, reflecting programming rate increases on existing services, costs associated with retransmission consent agreements, digital video subscriber growth and the expansion of service offerings.

     Employee costs for the three and six months ended June 30, 2009 increased primarily due to increases in group medical insurance and pension expenses. Employee costs for the six-month period also increased as a result of higher average headcount and salary increases.

     High-speed data costs consist of the direct costs associated with the delivery of high-speed data services, including network connectivity costs and certain high-speed data customer care support service costs. High-speed data costs decreased primarily due to a decline in certain customer care support service costs.

     Voice costs consist of the direct costs associated with the delivery of voice services, including network connectivity costs. Voice costs increased primarily due to growth in Digital Phone subscribers.

     Selling, general and administrative expenses. The major components of selling, general and administrative expenses were as follows (in millions):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
Employee		$	284			$	279				2	%		$	592			$	587				1	%
Marketing			128				151				(15	%)			268				309				(13	%)
Separation-related “make-up” equity award costs			2				—			NM					2				—			NM
Other			290				276				5	%			572				559				2	%
Total		$	704			$	706				—			$	1,434			$	1,455				(1	%)

     Selling, general and administrative expenses decreased primarily as a result of lower marketing costs, partially offset by an increase in bad debt expense. Employee costs for the three and six months ended June 30, 2009 also increased slightly due to higher pension expense, which, for the six months ended June 30, 2009, was partially offset by lower incentive compensation expense.

     As a result of the Separation, pursuant to their terms, Time Warner equity awards held by TWC employees were forfeited and/or experienced a reduction in value. During the three and six months ended June 30, 2009, the Company recorded $2 million of costs associated with TWC stock options and restricted stock units granted to its employees to offset these forfeitures and/or reduced values.

     Restructuring costs. The results include restructuring costs of $7 million and $50 million for three and six months ended June 30, 2009, respectively, and $4 million and $6 million for the three and six months ended June 30, 2008, respectively. During the first quarter of 2009, TWC began a significant restructuring, primarily consisting of headcount reductions, and expects to incur total restructuring charges of approximately $75 million during 2009, including the $50 million incurred during the first half of 2009. The Company expects to eliminate approximately 1,200 positions during 2009, of which approximately 900 positions were terminated during the first half of 2009.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Gain (loss) on sale of cable systems. During the three and six months ended June 30, 2008, the Company recorded a pretax impairment loss of $45 million as a result of the then anticipated sale of certain non-core cable systems, which closed in December 2008. During the fourth quarter of 2008, the Company recorded an additional pretax loss on the sale of these systems of $13 million (primarily representing post-closing and working capital adjustments). During the second quarter of 2009, $2 million of these losses were recovered as a result of additional working capital adjustments.

     Reconciliation of Operating Income to Operating Income before Depreciation and Amortization. The following table reconciles Operating Income to Operating Income before Depreciation and Amortization. In addition, the table provides the components from Operating Income to net income attributable to TWC for purposes of the discussions that follow (in millions):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
						(recast)												(recast)
Net income attributable to TWC		$	316			$	277				14	%		$	480			$	519				(8	%)
Plus: Net income attributable to noncontrolling interests			1				28				(96	%)			21				52				(60	%)
Net income			317				305				4	%			501				571				(12	%)
Income tax provision			216				200				8	%			407				382				7	%
Income before income taxes			533				505				6	%			908				953				(5	%)
Interest expense, net			336				219				53	%			626				418				50	%
Other expense, net			13				14				(7	%)			64				3			NM
Operating Income			882				738				20	%			1,598				1,374				16	%
Depreciation			701				722				(3	%)			1,392				1,423				(2	%)
Amortization			62				65				(5	%)			119				130				(8	%)
Operating Income before Depreciation and Amortization		$	1,645			$	1,525				8	%		$	3,109			$	2,927				6	%

     Operating Income before Depreciation and Amortization. As discussed above, Operating Income before Depreciation and Amortization for the three and six months ended June 30, 2009 was impacted by restructuring costs, Separation-related “make-up” equity award costs and the gain on sale of cable systems, and Operating Income before Depreciation and Amortization for the three and six months ended June 30, 2008 was impacted by restructuring costs and the loss on sale of cable systems. Excluding these items, Operating Income before Depreciation and Amortization for the three and six months ended June 30, 2009 increased principally as a result of revenue growth, partially offset by higher costs of revenues, as discussed above.

     Depreciation expense. The decrease in depreciation expense for the three and six months ended June 30, 2009 was primarily associated with certain property, plant and equipment acquired in the 2006 transactions with Adelphia Communications Corporation and Comcast Corporation that was fully depreciated subsequent to June 30, 2008, partially offset by purchases of customer premise equipment, scalable infrastructure and line extensions occurring during or subsequent to the comparable period in 2008.

     Amortization expense. Amortization expense for the six months ended June 30, 2009 benefited from an approximate $13 million adjustment to reduce excess amortization recorded in prior years.

     Operating Income. As discussed above, Operating Income for the three and six months ended June 30, 2009 was impacted by restructuring costs, Separation-related “make-up” equity award costs and the gain on sale of cable systems, and Operating Income for the three and six months ended June 30, 2008 was impacted by restructuring costs and the loss on sale of cable systems. Excluding these items, Operating Income increased for the three and six months ended June 30, 2009 primarily due to the increase in Operating Income before Depreciation and Amortization and the decrease in depreciation expense and amortization expense, as discussed above.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Interest expense, net. Interest expense, net, increased for the three and six months ended June 30, 2009 primarily due to higher average debt outstanding during the periods. Additionally, interest expense, net, for the six months ended June 30, 2009 included $13 million of debt issuance costs primarily related to the portion of the upfront loan fees for the 2008 Bridge Facility that was expensed due to the repayment of all borrowings outstanding under, and the resulting termination of, such facility with a portion of the net proceeds of the March 2009 Bond Offering. Interest expense, net, for the three and six months ended June 30, 2008 included $31 million of debt issuance costs related to the portion of the upfront loan fees for the 2008 Bridge Facility that was expensed due to the reduction of commitments under such facility as a result of the public offering of notes and debentures in June 2008 (the “June 2008 Bond Offering”). As a result of the debt incurred to finance the Special Dividend, including the Company’s public offering of notes in November 2008 (the “November 2008 Bond Offering,” and, together with the June 2008 Bond Offering, the “2008 Bond Offerings”) and the 2009 Bond Offerings, the Company expects that interest expense, net, will increase significantly during the remainder of 2009 as compared to 2008. See Note 4 to the accompanying consolidated financial statements for further details regarding the 2009 Bond Offerings.

     Other expense, net. Other expense, net, detail is shown in the table below (in millions):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2009				2008				2009				2008
Direct transaction costs related to the Separation Transactions(a)		$	1			$	10			$	28			$	12
Loss (income) from equity investments, net			10				(5	)			23				(10	)
Impairment of investment in The Reserve Fund(b)			—				—				10				—
Other investment losses (gains)(c)			(3	)			8				(3	)			(1	)
Equity award reimbursement obligation to Time Warner(d)			6				—				8				—
Other			(1	)			1				(2	)			2
Other expense, net		$	13			$	14			$	64			$	3

     The change in loss (income) from equity investments, net, for the three and six months ended June 30, 2009 was primarily due to the impact of losses incurred during the first half of 2009 by Clearwire Communications LLC, an equity-method investment of the Company.

     Income tax provision. TWC’s income tax provision has been prepared as if the Company operated as a stand-alone taxpayer for all periods presented. For the three months ended June 30, 2009 and 2008, the Company recorded income tax provisions of $216 million and $200 million, respectively. For the six months ended June 30, 2009 and 2008, the Company recorded income tax provisions of $407 million and $382 million, respectively. The effective tax rate was 41% and 40% for the three months ended June 30, 2009 and 2008, respectively, and was 45% and 40% for the six months ended June 30, 2009 and 2008, respectively. The increase in the effective tax rate for the six months ended June 30, 2009 was primarily a result of the passage of the California state budget during the first quarter of 2009 that, in part, changed the methodology of income tax apportionment in California. This tax law change resulted in an increase in state deferred tax liabilities and a corresponding noncash tax provision of $38 million, which was recorded in the first quarter of 2009. Absent this tax law change, the effective tax rate for the six months ended June 30, 2009 would have been 41%.

     Net income attributable to noncontrolling interests. Net income attributable to noncontrolling interests decreased principally due to the changes in the ownership structure of the Company as a result of the TW NY Exchange, which occurred in February 2009. Due to these changes, the Company expects that net income attributable to noncontrolling interests will be lower in the second half of 2009 as compared to the second half of 2008.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Net income attributable to TWC and net income attributable to TWC per common share. Net income attributable to TWC and net income attributable to TWC per common share were as follows for the three and six months ended June 30, 2009 and 2008 (in millions, except per share data):

		Three Months Ended												Six Months Ended
		June 30,												June 30,
		2009				2008				% Change				2009				2008				% Change
						(recast)												(recast)
Net income attributable to TWC		$	316			$	277				14	%		$	480			$	519				(8	%)
Net income attributable to TWC per common share:
Basic		$	0.90			$	0.85				6	%		$	1.39			$	1.59				(13	%)
Diluted		$	0.89			$	0.85				5	%		$	1.39			$	1.59				(13	%)

     As discussed above, net income attributable to TWC for the three and six months ended June 30, 2009 was impacted by restructuring costs, Separation-related “make-up” equity award costs and the gain on sale of cable systems, and net income attributable to TWC for the three and six months ended June 30, 2008 was impacted by restructuring costs and the loss on sale of cable systems. Excluding these items, for the three months ended June 30, 2009, net income attributable to TWC and net income attributable to TWC per common share increased primarily due to an increase in Operating Income and a decrease in net income attributable to noncontrolling interests, partially offset by an increase in interest expense, net, each as discussed above, and for the six months ended June 30, 2009, net income attributable to TWC and net income attributable to TWC per common share decreased primarily due to the increases in interest expense, net, other expense, net, and income tax provision, partially offset by an increase in Operating Income and a decrease in net income attributable to noncontrolling interests, each as discussed above.

FINANCIAL CONDITION AND LIQUIDITY

     Management believes that cash generated by or available to TWC should be sufficient to fund its capital and liquidity needs for the foreseeable future. There are no significant maturities of the Company’s long-term debt prior to February 2011. TWC’s sources of cash include cash provided by operating activities, cash and equivalents on hand, borrowing capacity under its committed credit facility and commercial paper program, as well as access to capital markets.

     TWC’s unused committed capacity was $4.364 billion as of June 30, 2009, reflecting $528 million of cash and equivalents and $3.836 billion of available borrowing capacity under the Company’s $5.875 billion Revolving Credit Facility.

Current Financial Condition

     As of June 30, 2009, the Company had $22.626 billion of debt, $528 million of cash and equivalents (net debt of $22.098 billion, defined as total debt less cash and equivalents), $300 million of mandatorily redeemable non-voting Series A Preferred Equity Membership Units (the “TW NY Cable Preferred Membership Units”) issued by a subsidiary of TWC, Time Warner NY Cable LLC (“TW NY Cable”), and $7.917 billion of total TWC shareholders’ equity. As of December 31, 2008, the Company had $17.728 billion of debt, $5.449 billion of cash and equivalents (net debt of $12.279 billion), $300 million of TW NY Cable Preferred Membership Units and $17.164 billion of total TWC shareholders’ equity.

     The following table shows the significant items contributing to the increase in net debt from December 31, 2008 to June 30, 2009 (in millions):

Balance as of December 31, 2008		$	12,279
Payment of the Special Dividend			10,856
Cash provided by operating activities			(2,571	)
Capital expenditures			1,529
All other, net			5
Balance as of June 30, 2009		$	22,098

     As discussed in “Overview—Recent Developments—2009 Bond Offerings and Termination of Lending Commitments,” the Shelf Registration Statement on file with the SEC allows TWC to offer and sell from time to time senior and subordinated debt securities and debt warrants.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     The Company invests its cash and equivalents in a combination of money market, government and treasury funds, as well as bank certificates of deposit, in accordance with the Company’s investment policy of diversifying its investments and limiting the amount of its investments in a single entity or fund. Consistent with the foregoing, the Company invested a portion of the net cash proceeds of the June 2008 Bond Offering in The Reserve Fund’s Primary Fund (“The Reserve Fund”). On the morning of September 15, 2008, the Company requested a full redemption of its $490 million investment in The Reserve Fund, but the redemption request was not honored. On September 22, 2008, The Reserve Fund announced that redemptions of shares were suspended pursuant to an SEC order requested by The Reserve Fund so that an orderly liquidation could be effected. Through June 30, 2009, the Company received $441 million from The Reserve Fund representing its pro rata share of partial distributions made by The Reserve Fund. The Company believes that it is legally entitled to a return of its entire investment in The Reserve Fund. However, during the first quarter of 2009, The Reserve Fund announced that it was establishing a $3.5 billion special reserve for legal and other costs that would not be distributed to investors until all claims are resolved. As a result, the Company recorded a $10 million impairment of its investment in The Reserve Fund during the first quarter of 2009, which is included in other expense, net, in the accompanying consolidated statement of operations. The $39 million net receivable from The Reserve Fund as of June 30, 2009 is classified as prepaid expenses and other current assets in the accompanying consolidated balance sheet. On April 3, 2009, the Company filed suit in the New York State Supreme Court against The Reserve Fund alleging, among other things, that The Reserve Fund has breached its contractual obligations to the Company and seeking full payment of the amount of its outstanding obligation with interest. This case has been removed to federal district court in New York. On May 5, 2009, the SEC filed an Order to Show Cause with the federal district court in New York seeking to enjoin The Reserve Fund’s current plan of distribution, and to compel a pro rata distribution of The Reserve Fund’s assets.

Cash Flows

     Cash and equivalents decreased $4.921 billion and increased $3.617 billion for the six months ended June 30, 2009 and 2008, respectively. Components of these changes are discussed below in more detail.

Operating Activities

     Details of cash provided by operating activities are as follows (in millions):

		Six Months Ended
		June 30,
		2009				2008
Operating Income before Depreciation and Amortization		$	3,109			$	2,927
Loss (gain) on sale of cable systems			(2	)			45
Noncash equity-based compensation			54				48
Net interest payments(a)			(517	)			(394	)
Pension plan contributions(b)			(81	)			(100	)
Restructuring accruals (payments), net			15				(6	)
Net income taxes paid(c)			(13	)			(18	)
All other, net, including working capital changes			6				33
Cash provided by operating activities		$	2,571			$	2,535

     Cash provided by operating activities increased from $2.535 billion for the six months ended June 30, 2008 to $2.571 billion for the six months ended June 30, 2009. This increase was primarily related to an increase in Operating Income before Depreciation and Amortization (as previously discussed), the decrease in pension plan contributions and the change in restructuring accruals (payments), net, partially offset by an increase in net interest payments and the change in working capital requirements. The increase in net interest payments resulted from higher average debt outstanding during the first half of 2009, as well as the timing of interest payments.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Net income taxes paid during the six months ended June 30, 2009 benefited from reimbursements from Time Warner in accordance with a tax sharing arrangement between TWC and Time Warner, as well as the impact of the accelerated depreciation deductions provided by the American Recovery and Reinvestment Act of 2009, partially offset by the reversal of a portion of similar benefits received in 2008 from the Economic Stimulus Act of 2008. These Acts provide for a first year bonus depreciation deduction of 50% of the cost of the Company’s qualified capital expenditures for the year and the net benefit is expected to continue throughout the remainder of 2009.

     As a result of the 2008 Bond Offerings and the 2009 Bond Offerings, the Company expects that its net interest payments will continue to increase significantly during the remainder of 2009 as compared to 2008.

     The Company contributed $80 million to its funded defined benefit pension plans during the first half of 2009 and anticipates making additional discretionary cash contributions of at least $70 million during the remainder of 2009, subject to market conditions and other considerations.

Investing Activities

     Details of cash used by investing activities are as follows (in millions):

		Six Months Ended
		June 30,
		2009				2008
Investments and acquisitions, net of cash acquired and distributions received:
The Reserve Fund		$	54			$	—
SpectrumCo(a)			(27	)			(3	)
All other			(10	)			(23	)
Capital expenditures			(1,529	)			(1,708	)
Other investing activities			7				11
Cash used by investing activities		$	(1,505	)		$	(1,723	)

     Cash used by investing activities decreased from $1.723 billion for the six months ended June 30, 2008 to $1.505 billion for the six months ended June 30, 2009. This decrease was principally due to a decrease in capital expenditures and the change in investments and acquisitions, net. The Company expects that capital expenditures will continue to be lower in the second half of 2009 as compared to 2008.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     TWC’s capital expenditures included the following major categories (in millions):

		Six Months Ended
		June 30,
		2009				2008
Customer premise equipment(a)		$	663			$	856
Scalable infrastructure(b)			334				258
Line extensions(c)			141				179
Upgrades/rebuilds(d)			86				147
Support capital(e)			305				268
Total capital expenditures		$	1,529			$	1,708

     TWC incurs expenditures associated with the construction of its cable systems. Costs associated with the construction of the cable transmission and distribution facilities and new cable service installations are capitalized. TWC generally capitalizes expenditures for tangible fixed assets having a useful life of greater than one year. Capitalized costs include direct material, labor and overhead, as well as interest. Sales and marketing costs, as well as the costs of repairing or maintaining existing fixed assets, are expensed as incurred. With respect to certain customer premise equipment, which includes set-top boxes and high-speed data and telephone cable modems, TWC capitalizes installation charges only upon the initial deployment of these assets. All costs incurred in subsequent disconnects and reconnects are expensed as incurred. Depreciation on these assets is provided generally using the straight-line method over their estimated useful lives. For set-top boxes and modems, the useful life is 3 to 5 years, and, for distribution plant, the useful life is up to 16 years.

Financing Activities

     Details of cash provided (used) by financing activities are as follows (in millions):

		Six Months Ended
		June 30,
		2009				2008
Borrowings (repayments), net(a)		$	—			$	(166	)
Borrowings			10,071				5,203
Repayments			(5,177	)			(2,145	)
Debt issuance costs			(24	)			(85	)
Payment of Special Dividend			(10,856	)			—
Other financing activities			(1	)			(2	)
Cash provided (used) by financing activities		$	(5,987	)		$	2,805

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Cash provided by financing activities was $2.805 billion for the six months ended June 30, 2008 compared to cash used by financing activities of $5.987 billion for the six months ended June 30, 2009. Cash used by financing activities for the six months ended June 30, 2009 primarily included the payment of the Special Dividend, partially offset by the net proceeds of the 2009 Bond Offerings and borrowings under the Revolving Credit Facility. Cash provided by financing activities for the six months ended June 30, 2008 primarily included net proceeds from the June 2008 Bond Offering, partially offset by repayments under the Revolving Credit Facility and commercial paper program, and debt issuance costs relating to the June 2008 Bond Offering and the 2008 Bridge Facility.

Free Cash Flow

     Reconciliation of Cash provided by operating activities to Free Cash Flow. The following table reconciles Cash provided by operating activities to Free Cash Flow (in millions):

		Six Months Ended
		June 30,
		2009				2008
Cash provided by operating activities		$	2,571			$	2,535
Add: Excess tax benefit from exercise of stock options			—				—
Less:
Capital expenditures			(1,529	)			(1,708	)
Cash paid for other intangible assets			(10	)			(19	)
Partnership distributions and principal payments on capital leases			(1	)			(2	)
Free Cash Flow		$	1,031			$	806

     Free Cash Flow increased from $806 million for the six months ended June 30, 2008 to $1.031 billion for the six months ended June 30, 2009, primarily as a result of a decrease in capital expenditures and an increase in cash provided by operating activities, as discussed above.

Outstanding Debt and Mandatorily Redeemable Preferred Equity and Available Financial Capacity

     Debt and mandatorily redeemable preferred equity as of June 30, 2009 and December 31, 2008 were as follows:

		Interest Rate at								Outstanding Balance as of
		June 30,								June 30,				December 31,
		2009				Maturity				2009				2008
										(in millions)
Credit facilities(a)			0.805	%(b)			2011			$	3,500			$	3,045
TWE notes and debentures(c)			7.826	%(b)			2012-2033				2,708				2,714
TWC notes and debentures			6.796	%(d)			2012-2039				16,406				11,956
Capital leases and other(e)											12				13
Total debt											22,626				17,728
TW NY Cable Preferred Membership Units			8.210	%			2013				300				300
Total debt and mandatorily redeemable preferred equity										$	22,926			$	18,028

     See “Overview—Recent Developments—2009 Bond Offerings and Termination of Lending Commitments” and Note 4 to the accompanying consolidated financial statements for further details regarding the Company’s outstanding debt and mandatorily redeemable preferred equity and other financing arrangements, including certain information about maturities, covenants, rating triggers and bank credit agreement leverage ratios relating to such debt and financing arrangements.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

Lending Commitments

     Lehman Brothers Bank, FSB (“LBB”), a subsidiary of Lehman Brothers Holding Inc. (“Lehman”), was a lender under the Revolving Credit Facility. On September 15, 2008, Lehman filed a petition under Chapter 11 of the U.S. Bankruptcy Code with the U.S. Bankruptcy Court for the Southern District of New York. On March 3, 2009, the Company entered into an amendment to the Revolving Credit Facility to terminate LBB’s $125 million commitment under such facility. As a result of this termination, the borrowing capacity under the Revolving Credit Facility was reduced from $6.000 billion to $5.875 billion.

MARKET RISK MANAGEMENT

     Market risk is the potential gain/loss arising from changes in market rates and prices, such as interest rates. During June 2009, the Company entered into interest rate swap contracts to increase the Company’s percentage of variable-rate debt. The Company is subject to market risk with respect to its fixed-rate debt for the portion that is not covered by an interest rate swap agreement ($17.406 billion as of June 30, 2009). Refer to the June 2009 Form 8-K for a discussion of additional market risks applicable to the Company.

Interest Rate Risk

     The Company is exposed to the market risk of adverse changes in interest rates. To manage the volatility relating to these exposures, the Company’s policy is to maintain a mix of fixed-rate and variable-rate debt and to enter into various interest rate derivative transactions as described below. Using interest rate swaps, the Company agrees to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed-upon notional principal amount.

     The following table summarizes the terms of the Company’s existing fixed to variable interest rate swaps as of June 30, 2009:

Maturities			2012-2014
Notional amount (in millions)		$	1,700
Average pay rate (variable based on LIBOR plus variable margins)			3.95%
Average receive rate (fixed)			6.30%
Estimated fair value (in millions)		$	8

     The notional amounts of interest rate instruments, as presented in the above table, are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss. The estimated fair value approximates the proceeds (costs) to settle the outstanding contracts. While interest rate swaps represent an integral part of the Company’s interest rate risk management program, their incremental effect on interest expense for the three and six months ended June 30, 2009 was not significant.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

     This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenues, Operating Income (Loss) before Depreciation and Amortization, cash provided by operating activities and other financial measures. Words such as “anticipates,” “estimates,” “expects,” “projects,” “intends,” “plans,” “believes” and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are based on management’s current expectations and beliefs about future events. As with any projection or forecast, they are inherently susceptible to uncertainty and changes in circumstances, and the Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of such changes, new information, subsequent events or otherwise.

TIME WARNER CABLE INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION—(Continued)

     Various factors could adversely affect the operations, business or financial results of TWC in the future and cause TWC’s actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in Item 1A, “Risk Factors,” in the 2008 Form 10-K, and in TWC’s other filings made from time to time with the SEC after the date of this report. In addition, the Company operates in a highly competitive, consumer and technology-driven and rapidly changing business. The Company’s business is affected by government regulation, economic, strategic, political and social conditions, consumer response to new and existing products and services, technological developments and, particularly in view of new technologies, its continued ability to protect and secure any necessary intellectual property rights. TWC’s actual results could differ materially from management’s expectations because of changes in such factors.

     Further, lower than expected valuations associated with the Company’s cash flows and revenues may result in the Company’s inability to realize the value of recorded intangibles and goodwill. Additionally, achieving the Company’s financial objectives could be adversely affected by the factors discussed in detail in Item 1A, “Risk Factors,” in the 2008 Form 10-K, as well as:

•

a longer than anticipated continuation of the current economic slowdown or further deterioration in the economy;

•

any reduction in the Company’s ability to access the capital markets for debt securities or bank financings, including as a result of current liquidity issues affecting the capital markets;

•

the impact of terrorist acts and hostilities;

•

changes in the Company’s plans, strategies and intentions;

•

the impacts of significant acquisitions, dispositions and other similar transactions; and

•

the failure to meet earnings expectations.

TIME WARNER CABLE INC.
Item 4. CONTROLS AND PROCEDURES

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

   The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s “disclosure controls and procedures” (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Company’s management to allow timely decisions regarding the required disclosure.

Changes in Internal Control Over Financial Reporting

   There have not been any changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2009 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.

CONSOLIDATED BALANCE SHEET
(Unaudited)

		June 30,				December 31,
		2009				2008
						(recast)
		(in millions)
ASSETS
Current assets:
Cash and equivalents		$	528			$	5,449
Receivables, less allowances of $112 million and $90 million as of June 30, 2009 and December 31, 2008, respectively			617				692
Receivables from affiliated parties			—				161
Deferred income tax assets			142				156
Prepaid expenses and other current assets			306				201
Total current assets			1,593				6,659
Investments			911				895
Property, plant and equipment, net			13,557				13,537
Intangible assets subject to amortization, net			390				493
Intangible assets not subject to amortization			24,091				24,094
Goodwill			2,103				2,101
Other assets			127				110
Total assets		$	42,772			$	47,889
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable		$	355			$	546
Deferred revenue and subscriber-related liabilities			170				156
Payables to affiliated parties			40				209
Accrued programming expense			712				530
Other current liabilities			1,551				1,432
Total current liabilities			2,828				2,873
Long-term debt			22,626				17,727
Mandatorily redeemable preferred equity membership units issued by a subsidiary			300				300
Deferred income tax liabilities, net			8,515				8,193
Other liabilities			582				522
Commitments and contingencies (Note 9)
TWC shareholders’ equity:
Class A common stock, $0.01 par value, 0 shares and 300.7 million shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively			—				3
Class B common stock, $0.01 par value, 0 shares and 25.0 million shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively			—				—
Common stock, $0.01 par value, 352.4 million shares and 0 shares issued and outstanding as of June 30, 2009 and December 31, 2008, respectively			4				—
Paid-in capital			9,774				19,514
Accumulated other comprehensive loss, net			(459	)			(467	)
Accumulated deficit			(1,402	)			(1,886	)
Total TWC shareholders’ equity			7,917				17,164
Noncontrolling interests			4				1,110
Total equity			7,921				18,274
Total liabilities and equity		$	42,772			$	47,889

See accompanying notes.

CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
						(recast)								(recast)
		(in millions, except per share data)
Revenues:
Subscription:
Video		$	2,706			$	2,636			$	5,373			$	5,239
High-speed data			1,123				1,032				2,224				2,026
Voice			471				397				922				763
Total Subscription			4,300				4,065				8,519				8,028
Advertising			174				233				319				430
Total revenues(a)			4,474				4,298				8,838				8,458
Costs and expenses:
Costs of revenues(a)(b)			2,120				2,018				4,247				4,025
Selling, general and administrative(a)(b)			704				706				1,434				1,455
Depreciation			701				722				1,392				1,423
Amortization			62				65				119				130
Restructuring costs			7				4				50				6
(Gain) loss on sale of cable systems			(2	)			45				(2	)			45
Total costs and expenses			3,592				3,560				7,240				7,084
Operating Income			882				738				1,598				1,374
Interest expense, net			(336	)			(219	)			(626	)			(418	)
Other expense, net			(13	)			(14	)			(64	)			(3	)
Income before income taxes			533				505				908				953
Income tax provision			(216	)			(200	)			(407	)			(382	)
Net income			317				305				501				571
Less: Net income attributable to noncontrolling interests			(1	)			(28	)			(21	)			(52	)
Net income attributable to TWC		$	316			$	277			$	480			$	519
Net income attributable to TWC per common share:
Basic		$	0.90			$	0.85			$	1.39			$	1.59
Diluted		$	0.89			$	0.85			$	1.39			$	1.59
Average common shares outstanding:
Basic			352.3				325.6				345.7				325.6
Diluted			353.7				326.0				346.4				325.9
Special cash dividend declared and paid per share of common stock		$	—			$	—			$	30.81			$	—
(a)       Includes the following income (expenses) resulting from transactions with affiliated parties:
		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
		(in millions)								(in millions)
Revenues		$	4			$	4			$	9			$	7
Costs of revenues			(71	)			(269	)			(299	)			(539	)
Selling, general and administrative			—				(3	)			(3	)			(7	)

See accompanying notes.

CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)

		Six Months Ended June 30,
		2009				2008
						(recast)
		(in millions)
OPERATING ACTIVITIES
Net income		$	501			$	571
Adjustments for noncash and nonoperating items:
Depreciation and amortization			1,511				1,553
Pretax (gain) loss on asset sales			(2	)			36
Loss from equity investments, net of cash distributions			26				5
Deferred income taxes			335				376
Equity-based compensation			54				48
Changes in operating assets and liabilities, net of acquisitions:
Receivables			79				18
Accounts payable and other liabilities			111				(30	)
Other changes			(44	)			(42	)
Cash provided by operating activities			2,571				2,535
INVESTING ACTIVITIES
Investments and acquisitions, net of cash acquired and distributions received			17				(26	)
Capital expenditures			(1,529	)			(1,708	)
Proceeds from asset sales			7				11
Cash used by investing activities			(1,505	)			(1,723	)
FINANCING ACTIVITIES
Borrowings (repayments), net(a)			—				(166	)
Borrowings(b)			10,071				5,203
Repayments(b)			(5,177	)			(2,145	)
Debt issuance costs			(24	)			(85	)
Payment of special cash dividend			(10,856	)			—
Other financing activities			(1	)			(2	)
Cash provided (used) by financing activities			(5,987	)			2,805
Increase (decrease) in cash and equivalents			(4,921	)			3,617
Cash and equivalents at beginning of period			5,449				232
Cash and equivalents at end of period		$	528			$	3,849

See accompanying notes.

CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)

		Six Months Ended June 30, 2009												Six Months Ended June 30, 2008
		TWC												TWC
		Shareholders’				Noncontrolling				Total				Shareholders’				Noncontrolling				Total
		Equity				Interests				Equity				Equity				Interests				Equity
		(in millions)												(recast, in millions)
BALANCE AT BEGINNING OF PERIOD		$	17,164			$	1,110			$	18,274			$	24,706			$	1,724			$	26,430
Net income			480				21				501				519				52				571
Other comprehensive income (loss)(a)			8				—				8				(6	)			—				(6	)
Comprehensive income			488				21				509				513				52				565
Equity-based compensation			52				2				54				45				3				48
Redemption of Historic TW’s interest in TW NY			1,128				(1,128	)			—				—				—				—
Special cash dividend ($30.81 per common share)			(10,856	)			—				(10,856	)			—				—				—
Retained distribution related to unvested restricted stock units			(46	)			—				(46	)			—				—				—
Impact of adopting new accounting pronouncements(b)			—				—				—				(1	)			—				(1	)
Other changes			(13	)			(1	)			(14	)			7				(3	)			4
BALANCE AT END OF PERIOD		$	7,917			$	4			$	7,921			$	25,270			$	1,776			$	27,046

See accompanying notes.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)

1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Description of Business

     Time Warner Cable Inc. (together with its subsidiaries, “TWC” or the “Company”) is the second-largest cable operator in the U.S., with technologically advanced, well-clustered systems located mainly in five geographic areas – New York State (including New York City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. As of June 30, 2009, TWC served approximately 14.7 million residential and commercial customers who subscribed to one or more of its video, high-speed data and voice services, which totaled approximately 26.2 million primary service units and approximately 35.0 million revenue generating units.

     As of December 31, 2008, Time Warner Inc. (“Time Warner”) owned approximately 84% of the common stock of TWC (representing a 90.6% voting interest), and also owned an indirect 12.43% non-voting common stock interest in TW NY Cable Holding Inc. (“TW NY”), a subsidiary of TWC. Additionally, the financial results of TWC were consolidated by Time Warner. As discussed further in Note 3, on March 12, 2009, TWC completed its separation from Time Warner. As a result of the separation, Time Warner no longer has an ownership interest in TWC.

     TWC principally offers three services – video, high-speed data and voice – over its broadband cable systems. TWC markets its services separately and in “bundled” packages of multiple services and features. As of June 30, 2009, 56% of TWC’s customers subscribed to two or more of its primary services, including 23% of its customers who subscribed to all three primary services. In addition to its residential services, TWC offers commercial customers video, high-speed data, voice and networking and transport services. In addition, TWC sells advertising to a variety of national, regional and local advertising customers.

     Video is TWC’s largest service in terms of revenues generated and, as of June 30, 2009, TWC had approximately 13.0 million video subscribers, of which approximately 8.8 million received video service via digital transmissions.

     As of June 30, 2009, TWC had approximately 8.8 million residential high-speed data subscribers. TWC also offers commercial high-speed data services and had 289,000 commercial high-speed data subscribers as of June 30, 2009.

     As of June 30, 2009, TWC had approximately 4.0 million residential Digital Phone subscribers. TWC also offers its commercial Digital Phone service, Business Class Phone, in nearly all of its operating areas and had 48,000 commercial Digital Phone subscribers as of June 30, 2009.

Basis of Presentation

Changes in Basis of Presentation

     TWC Reverse Stock Split. As discussed more fully in Note 3, in connection with TWC’s separation from Time Warner, on March 12, 2009, the Company implemented a reverse stock split of TWC common stock (the “TWC reverse stock split”) at a 1-for-3 ratio. The Company has recast the presentation of share and per share data in the prior year financial statements to reflect the TWC reverse stock split.

     Transactions with Affiliated Parties. As discussed more fully in Note 3, upon completion of TWC’s separation from Time Warner, Time Warner and its affiliates are no longer related parties to TWC. For the periods prior to TWC’s separation from Time Warner, TWC has disclosed transactions with Time Warner and its affiliates in the financial statements as related party transactions.

Basis of Consolidation

     The consolidated financial statements include 100% of the assets, liabilities, revenues, expenses and cash flows of TWC and all entities in which TWC has a controlling voting interest. Prior to TWC’s separation from Time Warner on March 12, 2009, the consolidated financial statements also include allocations of certain Time Warner corporate costs deemed reasonable by management to present the Company’s consolidated financial position, results of operations, cash flows and changes in equity on a stand-alone basis. The Time Warner corporate costs include specified administrative

TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(Unaudited)

services, including selected tax, human resources, legal, information technology, treasury, financial, public policy and corporate and investor relations services, and approximate Time Warner’s estimated cost for services rendered. In accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46 (revised 2003), Consolidation of Variable Interest Entities—an interpretation of ARB No. 51, (“FIN 46(R)”), the consolidated financial statements include the results of Time Warner Entertainment-Advance/Newhouse Partnership (“TWE-A/N”) only for the systems that are controlled by TWC and for which TWC holds an economic interest. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.

Use of Estimates

     The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates.

     Significant estimates inherent in the preparation of the consolidated financial statements include accounting for asset impairments, allowances for doubtful accounts, investments, depreciation and amortization, business combinations, pension benefits, equity-based compensation, income taxes, contingencies and certain programming arrangements. Allocation methodologies used to prepare the consolidated financial statements are based on estimates and have been described in the notes, where appropriate.

Reclassifications

     Certain reclassifications have been made to the prior year’s financial information to conform to the June 30, 2009 presentation.

Interim Financial Statements

     The consolidated financial statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with GAAP applicable to interim periods. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements of TWC included in the Company’s Current Report on Form 8-K dated, and filed with the Securities and Exchange Commission (the “SEC”) on, June 24, 2009 (the “June 2009 Form 8-K”), which recasts certain information in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.

Net Income Attributable to TWC per Common Share

     Net income attributable to TWC per basic common share is computed by dividing net income attributable to TWC by the weighted average of common shares outstanding during the period. For the six months ended June 30, 2008, weighted-average common shares include shares of Class A common stock and Class B common stock. Net income attributable to TWC per diluted common share adjusts net income attributable to TWC per basic common share for the effects of stock options and restricted stock units only in the periods in which such effect is dilutive. Set forth below is a reconciliation of net income attributable to TWC per basic and diluted common share (in millions, except per share data):

		Three Months Ended June 30,								Six Months Ended June 30,
		2009				2008				2009				2008
						(recast)								(recast)
Net income attributable to TWC		$	316			$	277			$	480			$	519
Average common shares outstanding—basic			352.3				325.6				345.7				325.6
Dilutive effect of equity awards			1.4				0.4				0.7				0.3
Average common shares outstanding—diluted			353.7				326.0				346.4				325.9
Net income attributable to TWC per common share:
Basic		$	0.90			$	0.85			$	1.39			$	1.59
Diluted		$	0.89			$	0.85			$	1.39			$	1.59