TWC Whacked With $15B in Charges

Shares in Time Warner Cable Inc. (NYSE: TWC) slid almost 5 percent Wednesday after the MSO announced it would absorb a non-cash, pre-tax impairment charge of about $15 billion for certain "indefinite-lived intangible assets" -- tied mostly to cable franchise rights -- in the fourth quarter of 2008.

Additionally, Time Warner Cable expects to incur a non-cash, pretax impairment charge of roughly $350 million linked to its investment in Clearwire LLC (Nasdaq: CLWR). (See Cable Plays Clearwire Card.) However, the MSO did not alter its latest outlook for 2008 revenues, adjusted operating income before depreciation and amortization, and free cashflow.

But, as a result of the changes that are occurring, the MSO said it expects to incur a net loss and a loss per diluted share for 2008. Time Warner Cable didn't provide more specific data but noted it intends to finalize its impairment analysis before the MSO releases its 2008 financial results on Feb. 4, 2009.

The MSO warned in its most recent 10-Q that such charges might be coming amid recent declines in the company's share price (finishing 2008 down almost 40 percent) and the general ugly condition of the economy. As for the economy, MSO president and CEO Glenn Britt disclosed last month that revenue-generating unit (RGU) growth slowed dramatically in October 2008 versus the year before as consumers continued to tighten their pocketbooks. (See TWC CEO: Cable Sub Growth Still Slowing .)

According to Sanford C. Bernstein & Co. Inc. analyst Craig Moffett, Time Warner Cable reported $38.9 billion in "intangibles not subject to amortization," predominately franchise rights, at the end of the third quarter. The $15 billion figure "represents a 39% writedown," Moffett explained in a report issued on Wednesday.

"Historically, franchise impairments have been taken primarily when the probability of renewal is in doubt," he added. "In this case, however, the writedown appears to be purely an acknowledgement of prevailing market values."

Moffett also does not expect the writedown to affect GAAP (Generally Accepted Accounting Principle) earnings beyond the fourth quarter or to have an effect on the cash taxes the MSO pays.

Despite the impairment charges TWC referenced today, Moffett maintained his Outperform rating on the MSO, and a price target of $33.

TWC shares closed at $21.56 each on Wednesday, down $1.09 (4.81%). The MSO is in the process of splitting off from Time Warner Inc. (NYSE: TWX). (See Time Warner Cable Leaving the Nest.)

Time Warner Inc. said it expects non-cash impairment charges to total about $25 billion. While $15 billion is related to goodwill and identifiable intangible assets at the cable unit, the other $10 billion in charges are related to its publishing and AOL segments.

— Jeff Baumgartner, Site Editor, Cable Digital News

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