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Time Warner Cable Reports 2015 First-Quarter ResultsTime Warner Cable Inc. (NYSE:TWC) today reported financial results for its first quarter ended March 31, 2015. Time Warner Cable Chairman and CEO Rob Marcus said: "By almost any measure, Q1 was our best subscriber quarter ever. We've made significant investments to improve our customers' experience and our operational performance, and they are paying off. We are a far stronger company than we were just five short quarters ago." Marcus continued, "Our company has terrific assets, a world class team and a well-architected operating plan; I am confident we can drive meaningful growth and create even more value for our shareholders." SELECTED CONSOLIDATED FINANCIAL RESULTS _____________________________________________________________________________________________________
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HIGHLIGHTS Financial Highlights
Operational Highlights
CONSOLIDATED REVENUE AND PROFITABILITY RESULTS Revenue for the first quarter of 2015 increased 3.5% year over year as a result of revenue growth at the Business Services and Residential Services segments. Adjusted Operating Income before Depreciation and Amortization ("Adjusted OIBDA") for the first quarter of 2015 increased 0.8% driven by revenue growth, partially offset by a 5.0% year-over-year increase in operating expenses. _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ The increase in operating expenses was primarily due to higher programming, employee, maintenance and bad debt expense; partially offset by declines in marketing costs and voice costs. The increase in employee costs reflects the Company's continued investments in sales and marketing, technical operations and customer care initiatives and a $26 million increase in pension expense, partially offset by a $27 million decrease in employee medical costs (as a result of changes in estimates of previously established employee medical accruals and lower claims activity) and lower shared functions personnel costs. Operating Income for the first quarter of 2015 decreased 0.7% primarily due to higher depreciation expense, partially offset by lower merger-related and restructuring costs and higher Adjusted OIBDA. Merger-related and restructuring costs for the first quarter of 2015 included $24 million of Comcast merger-related costs (consisting of employee retention costs of $14 million and advisory and legal fees of $10 million) and $2 million of restructuring costs primarily associated with employee terminations. DETAILED SEGMENT RESULTS Residential Services Selected Residential Services Financial Results _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ (a) Refer to Note 4 to the accompanying consolidated financial statements for a definition of Adjusted OIBDA. Residential Services revenue increased as a result of an increase in high-speed data revenue, partially offset by decreases in video and voice revenue.
Residential Services Adjusted OIBDA decreased driven by a 6.0% increase in operating costs, partially offset by the increase in revenue discussed above. The increase in operating costs resulted from higher programming, technical operations, customer care and other operating costs, partially offset by lower sales and marketing costs.
Residential Services Subscriber Metrics _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ For definitions related to the Company's subscriber metrics, refer to the Trending Schedules posted on the Company's website at www.twc.com/investors. Business Services Selected Business Services Financial Results _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ (a) Refer to Note 4 to the accompanying consolidated financial statements for a definition of Adjusted OIBDA. Business Services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in cell tower backhaul revenue (which included certain early termination fees). The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 13.5% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee. Business Services Subscriber Metrics _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ For definitions related to the Company's subscriber metrics, refer to the Trending Schedules posted on the Company's website at www.twc.com/investors. Other Operations Selected Other Operations Financial Results _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ (a) Refer to Note 4 to the accompanying consolidated financial statements for a definition of Adjusted OIBDA. Advertising revenue decreased primarily due to lower political advertising revenue, as well as overall softness in the television advertising market. Political advertising revenue was $2 million in the first quarter of 2015 compared to $11 million in the first quarter of 2014. Other revenue increased primarily due to affiliate fees from the Residential Services segment. The decrease in Adjusted OIBDA was driven by a 3.5% increase in operating costs and expenses, primarily related to higher content costs associated with the Los Angeles Lakers' regional sports networks. Shared Functions Operating costs associated with broad "corporate" functions (e.g., accounting and finance, information technology, executive management, legal and human resources) or functions supporting more than one reportable segment that are centrally managed (e.g., facilities, network operations, vehicles and procurement) as well as other activities not directly attributable to a reportable segment were $727 million for both the first quarters of 2015 and 2014. Shared functions operating costs were flat primarily as increased maintenance expense was offset by lower costs as a result of operating efficiencies, including decreased employee-related expense. CONSOLIDATED NET INCOME Net Income Attributable to TWC Shareholders was $458 million, or $1.60 per basic common share and $1.59 per diluted common share, for the first quarter of 2015 compared to $479 million, or $1.71 per basic common share and $1.70 per diluted common share, for the first quarter of 2014. Net income attributable to TWC shareholders decreased primarily due to an increase in income tax provision and a decrease in Operating Income (driven by an increase in depreciation expense), partially offset by a decrease in interest expense. Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain items affecting the comparability of TWC's results for 2015 and 2014 detailed in Note 2 to the accompanying consolidated financial statements, were $474 million and $1.65, respectively, for the first quarter of 2015 compared to $503 million and $1.78, respectively, for the first quarter of 2014. _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ (a) Refer to Note 4 to the accompanying consolidated financial statements for definitions of Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS. SELECTED BALANCE SHEET AND CASH FLOW INFORMATION Free Cash Flow for the first three months of 2015 decreased 35.3% to $407 million from $629 million in the first three months of 2014, due mainly to an increase in capital expenditures (primarily customer premise equipment and scalable infrastructure), partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $1.1 billion for the first three months of 2015, increased primarily due to the Company's investments (including TWC Maxx) to improve network reliability, upgrade older customer premise equipment and expand its network to additional residences, commercial buildings and cell towers. Cash Provided by Operating Activities for the first three months of 2015 was $1.5 billion, a 7.9% increase from the first three months of 2014. This increase was primarily driven by lower working capital requirements and net interest payments, as well as higher Adjusted OIBDA. _____________________________________________________________________________________________________
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Net Debt, which totaled $22.7 billion as of March 31, 2015, decreased from December 31, 2014 as Free Cash Flow more than offset the cash used for dividends. _____________________________________________________________________________________________________
_____________________________________________________________________________________________________ (a) Net debt is defined as total debt less cash and equivalents. Non-GAAP Financial Measures The Company refers to certain financial measures that are not presented in accordance with U.S. generally accepted accounting principles ("GAAP"), including OIBDA, Adjusted OIBDA, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow. Refer to Note 4 to the accompanying consolidated financial statements for a discussion of the Company's use of non-GAAP financial measures. About Time Warner Cable Time Warner Cable Inc. (NYSE: TWC) is among the largest providers of video, high-speed data and voice services in the United States, connecting 15 million customers to entertainment, information and each other. Time Warner Cable Business Class offers data, video and voice services to businesses of all sizes, cell tower backhaul services to wireless carriers and enterprise-class, cloud-enabled hosting, managed applications and services. Time Warner Cable Media, the advertising sales arm of Time Warner Cable, offers national, regional and local companies innovative advertising solutions. More information about the services of Time Warner Cable is available at www.twc.com, www.twcbc.com and www.twcmedia.com. Additional details on financial and subscriber metrics are included in the Trending Schedules posted on the Company's Investor Relations website at www.twc.com/investors. Information on Conference Call Time Warner Cable's earnings conference call can be heard live at 8:30 am ET on Thursday, April 30, 2015. To listen to the call, visit www.twc.com/investors. Caution Concerning Forward-Looking Statements This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to changes in economic, business, competitive, technological, strategic and/or regulatory factors, and other factors affecting the operations of Time Warner Cable Inc. More detailed information about these factors may be found in filings by Time Warner Cable Inc. with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q. Time Warner Cable is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-looking statements, whether as a result of new information, future events, or otherwise.
See accompanying notes.
See accompanying notes.
See accompanying notes. TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. COMCAST MERGER AND CHARTER TRANSACTIONS On February 12, 2014, the Company entered into an Agreement and Plan of Merger (the "Merger Agreement") with Comcast Corporation ("Comcast") whereby the Company agreed to merge with and into a 100% owned subsidiary of Comcast (the "Comcast merger"). On April 24, 2015, Comcast and the Company entered into a Termination Agreement wherein the parties agreed to terminate the Merger Agreement. On April 25, 2014, Comcast entered into a binding agreement with Charter Communications, Inc. ("Charter"), which contemplated three transactions (the "divestiture transactions"): (1) a contribution, spin-off and merger transaction, (2) an asset exchange and (3) a sale of assets. The completion of the divestiture transactions would have resulted in the combined company divesting a net total of approximately 3.7 million video subscribers, a portion of which were TWC subscribers (primarily in the Midwest). On April 24, 2015, Comcast delivered a notice of termination of such agreement to Charter. On March 31, 2015, Charter and Advance/Newhouse Partnership ("A/N") announced that they and certain of their affiliates had reached a definitive agreement pursuant to which Charter would acquire Bright House Networks, LLC ("Bright House Networks"), subject to closing of the divestiture transactions and to TWC's "right of first offer" with respect to Bright House Networks. Bright House Networks is a 100% owned subsidiary of a partnership between A/N and Time Warner Cable Enterprises LLC, a subsidiary of TWC. TWC receives a fee from A/N for providing Bright House Networks with high-speed data services and certain management functions, which is included in Other Operations revenue. 2. ITEMS AFFECTING COMPARABILITY The following items affected the comparability of TWC's results for the three months ended March 31, 2015 and 2014:
3. RECONCILIATION OF ADJUSTED OIBDA TO OPERATING INCOME AND OTHER SEGMENT INFORMATION Consolidated information for the three months ended March 31, 2015 and 2014 is as follows:
The Company classifies its operations into the following reportable segments: • Residential Services, which principally consists of video, high-speed data and voice services provided to residential customers as well as other residential services, including security and home management services. • Business Services, which principally consists of data, video and voice services provided to business customers as well as other business services, including enterprise-class, cloud-enabled hosting, managed applications and services. • Other Operations, which principally consists of (i) Time Warner Cable Media ("TWC Media"), the advertising sales arm of TWC, (ii) TWC-owned and/or operated regional sports networks ("RSNs") and local sports, news and lifestyle channels (e.g., Time Warner Cable News NY1) and (iii) other operating revenue and costs, including those derived from A/N and home shopping network-related services. The business units reflected in the Other Operations segment individually do not meet the thresholds to be reported as separate reportable segments. In addition to the above reportable segments, the Company has shared functions (referred to as "Shared Functions") that include activities not attributable to a specific reportable segment. Shared Functions consists of operating costs and expenses associated with broad "corporate" functions (e.g., accounting and finance, information technology, executive management, legal and human resources) or functions supporting more than one reportable segment that are centrally managed (e.g., facilities, network operations, vehicles and procurement) as well as other activities not attributable to a reportable segment. As such, the reportable segment results reflect how management views such segments in assessing financial performance and allocating resources and are not necessarily indicative of the results of operations that each segment would have achieved had they operated as stand-alone entities during the periods presented. In evaluating the profitability of the Company's segments, the components of net income (loss) below OIBDA, as defined below, are not separately evaluated by management at the segment level. Due to the nature of the Company's operations, a majority of its assets, including its distribution systems, are utilized across the Company's operations and are not segregated by segment. In addition, segment assets are not reported to, or used by, management to allocate resources or assess the performance of the Company's segments. Accordingly, the Company has not disclosed asset information by segment. Segment information for the three months ended March 31, 2015 and 2014 is as follows:
Intersegment Eliminations relates to the programming provided to the Residential Services and Business Services segments by the Company's RSNs and local sports, news and lifestyle channels. These services are reflected as programming expense for the Residential Services and Business Services segments and as revenue for the Other Operations segment. 4. USE OF NON-GAAP FINANCIAL MEASURES In discussing its consolidated and segment performance, the Company may use certain measures that are not calculated and presented in accordance with U.S. generally accepted accounting principles ("GAAP"). These measures include OIBDA, Adjusted OIBDA, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow, which the Company defines as follows:
Management uses OIBDA and Adjusted OIBDA, among other measures, in evaluating the Company's consolidated and segment performance because they eliminate the effects of (i) considerable amounts of noncash depreciation and amortization and (ii) items not within the control of the Company's operations managers (such as income tax provision, other income (expense), net, and interest expense). Adjusted OIBDA further eliminates the effects of certain noncash items identified in the definition of Adjusted OIBDA above. Management also uses these measures to allocate resources and capital to the segments. Adjusted OIBDA is also a significant performance measure used in the Company's annual incentive compensation programs. Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS are considered important indicators of the operational strength of the Company as these measures eliminate amounts that do not reflect the fundamental performance of the Company. The Company utilizes Adjusted Diluted EPS, among other measures, to evaluate its performance both on an absolute basis and relative to its peers and the broader market. Management believes that Free Cash Flow is an important indicator of the Company's ability to generate cash, reduce net debt, pay dividends, repurchase common stock and make strategic investments, after the payment of cash taxes, interest and other cash items. In addition, all of these measures are commonly used by analysts, investors and others in evaluating the Company's performance and liquidity. These measures have inherent limitations. For example, OIBDA and Adjusted OIBDA do not reflect capital expenditures or the periodic costs of certain capitalized assets used in generating revenue. To compensate for such limitations, management evaluates performance through Free Cash Flow, which reflects capital expenditure decisions, and net income attributable to TWC shareholders, which reflects the periodic costs of capitalized assets. Adjusted OIBDA does not reflect any of the items noted as exclusions in the definition of Adjusted OIBDA above. To compensate for these limitations, management evaluates performance through OIBDA and net income attributable to TWC shareholders, which do reflect such items. OIBDA and Adjusted OIBDA also fail to reflect the significant costs borne by the Company for income taxes and debt servicing costs, the results of the Company's equity investments and other non-operational income or expense. Additionally, Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS do not reflect certain charges that affect the operating results of the Company and they involve judgment as to whether items affect fundamental operating performance. Management compensates for these limitations by using other analytics such as a review of net income attributable to TWC shareholders. Free Cash Flow, a liquidity measure, does not reflect payments made in connection with investments and acquisitions, which reduce liquidity. To compensate for this limitation, management evaluates such investments and acquisitions through other measures such as return on investment analyses. These non-GAAP measures should be considered in addition to, not as substitutes for, the Company's Operating Income, net income attributable to TWC shareholders 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.
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