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Time Warner Cable Reports 2016 First-Quarter ResultsTime Warner Cable Inc. (NYSE:TWC) today reported financial results for its first quarter ended March 31, 2016. Time Warner Cable Chairman and CEO Rob Marcus said: "Our first-quarter results are the clearest indication yet that our efforts over the last 27 months are paying off. We have made our network more reliable, our products more compelling and our customer service far better. We've refined our marketing, enhanced our sales channels and strengthened our retention capability. All of that has driven robust customer growth, which in Q1 translated into very strong revenue and OIBDA growth. I couldn't be prouder of what our talented, committed, passionate team has accomplished."
HIGHLIGHTS Financial Highlights
Operational Highlights
CONSOLIDATED REVENUE AND PROFITABILITY RESULTS Revenue for the first quarter of 2016 increased 7.2% year over year as a result of revenue growth at all segments. Adjusted Operating Income before Depreciation and Amortization ("Adjusted OIBDA") for the first quarter of 2016 increased 8.2% driven by revenue growth, partially offset by a 6.6% year-over-year increase in operating expenses.
The increase in operating expenses was primarily due to higher programming and employee costs, partially offset by a decline in bad debt expense. The increase in employee costs reflects the Company's continued investments in sales and marketing, technical operations and customer care initiatives, as well as a $26 million increase in employee medical costs (as a result of prior year changes in estimates of previously established employee medical accruals, partially offset by lower claims activity). Operating Income for the first quarter of 2016 increased 5.6% primarily due to higher Adjusted OIBDA, partially offset by higher depreciation expense and merger-related costs. Merger-related costs for the first quarters of 2016 and 2015 were $35 million and $24 million, respectively, and restructuring costs were $5 million and $2 million, respectively. DETAILED SEGMENT RESULTS Residential Services
Residential Services revenue increased as a result of increases in high-speed data, video and voice revenue.
Residential Services Adjusted OIBDA increased driven by the increase in revenue discussed above, partially offset by a 6.2% increase in operating costs. The increase in operating costs resulted from higher programming, sales and marketing and technical operations costs, partially offset by a decrease in other operating costs.
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
Business Services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in wholesale transport revenue. The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 15.9% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee, as well as growth in programming, voice and marketing costs.
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
Advertising revenue increased primarily due to growth in political advertising revenue, which was $11 million in the first quarter of 2016 compared to $2 million in the first quarter of 2015. Other revenue increased primarily due to the recognition of approximately $20 million of revenue associated with the settlement of a contractual dispute, as well as an increase in affiliate fees from the Residential Services segment and other distributors of the Los Angeles Lakers' regional sports networks and SportsNet LA. The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 5.1% increase in operating costs and expenses, primarily related to higher costs associated with advertising inventory sold on behalf of other video distributors and an increase in 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 increased 5.0% year over year to $763 million for the first quarter of 2016. Shared functions operating costs increased primarily due to higher compensation costs per employee and increased insurance expense, partially offset by lower costs as a result of operating efficiencies. CONSOLIDATED NET INCOME Net Income Attributable to TWC Shareholders was $494 million, or $1.73 per basic common share and $1.72 per diluted common share, for the first quarter of 2016 compared to $458 million, or $1.60 per basic common share and $1.59 per diluted common share, for the first quarter of 2015. Net income attributable to TWC shareholders increased primarily due to an increase in Operating Income, partially offset by an increase in income tax provision. Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude certain items affecting the comparability of TWC's results for 2016 and 2015 detailed in Note 2 to the accompanying consolidated financial statements, were $518 million and $1.81, respectively, for the first quarter of 2016 compared to $474 million and $1.65, respectively, for the first quarter of 2015.
SELECTED BALANCE SHEET AND CASH FLOW INFORMATION Free Cash Flow for the first three months of 2016 decreased 15.0% to $346 million from $407 million in the first three months of 2015, due mainly to an increase in capital expenditures, partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $1.3 billion for the first three months of 2016, increased due to customer relationship growth, as well as 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 2016 was $1.6 billion, a 6.6% increase from the first three months of 2015. This increase was primarily driven by an increase in Adjusted OIBDA, partially offset by a change in working capital.
Net Debt, which totaled $21.2 billion as of March 31, 2016, decreased from December 31, 2015 as Free Cash Flow more than offset the cash used for dividends.
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 16 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 28, 2016. 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., including its proposed merger with Charter Communications, 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.
TIME WARNER CABLE INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. MERGER-RELATED TRANSACTIONS Charter Merger On May 23, 2015, Time Warner Cable Inc. ("TWC" or the "Company") entered into an Agreement and Plan of Mergers (the "Charter Merger Agreement") with Charter Communications, Inc. ("Charter") and certain of its subsidiaries, pursuant to which the parties will engage in a series of transactions (the "Charter merger") that will result in the Company and Charter becoming 100% owned subsidiaries of a new public parent company ("New Charter"), on the terms and subject to the conditions set forth in the Charter Merger Agreement. Upon the consummation of the Charter merger, each share of TWC common stock (other than treasury shares held by the Company and TWC stock held by the Liberty Parties (as defined below)) will be converted into the right to receive, at the option of each stockholder, either (i) $100 in cash and shares of New Charter Class A common stock equivalent to 0.5409 shares of Charter Class A common stock ("Charter common stock") or (ii) $115 in cash and shares of New Charter Class A common stock equivalent to 0.4562 shares of Charter common stock. Upon the consummation of the Charter merger, subject to certain exceptions, each share of TWC common stock held by Liberty Broadband Corporation or Liberty Interactive Corporation (together, the "Liberty Parties") will convert only into the right to receive shares of New Charter Class A common stock. On September 21, 2015, the Company's stockholders approved the adoption of the Charter Merger Agreement, and Charter's stockholders approved, among other things, the adoption of the Charter Merger Agreement and the issuance of New Charter Class A common stock to TWC stockholders in the Charter merger. The Charter merger is subject to regulatory approvals and certain other closing conditions. Bright House Networks Transaction On May 23, 2015, Charter and Advance/Newhouse Partnership ("A/N") and certain of their affiliates amended an agreement the parties had signed on March 31, 2015 (the "Bright House Networks Agreement"). Under the amended Bright House Networks Agreement, Charter will acquire Bright House Networks, LLC ("Bright House Networks"), subject to, among other conditions, the closing of the Charter merger. Bright House Networks is a 100% owned subsidiary of a partnership ("TWE-A/N") between A/N and Time Warner Cable Enterprises LLC ("TWCE"), a subsidiary of TWC. The closing of Charter's acquisition of Bright House Networks is expected to occur concurrently with the closing of the Charter merger. However, the closing of the Charter merger is not conditioned on the closing of the Bright House Networks transaction. In the Charter Merger Agreement, the Company and TWCE agreed to irrevocably and unconditionally waive their "right of first offer" to acquire the assets of Bright House Networks during the pendency of the Charter merger. This waiver will expire if the Charter Merger Agreement is terminated in accordance with its terms, provided that the Company or any of its Affiliates (as defined in the Charter Merger Agreement) does not, within nine months following such a termination, enter into an agreement or understanding in respect of, or consummate, an alternative acquisition transaction. 2. ITEMS AFFECTING COMPARABILITY The following items affected the comparability of TWC's results for the three months ended March 31, 2016 and 2015:
3. RECONCILIATION OF ADJUSTED OIBDA TO OPERATING INCOME AND OTHER SEGMENT INFORMATION Consolidated information for the three months ended March 31, 2016 and 2015 is as follows:
Segment information for the three months ended March 31, 2016 and 2015 is as follows:
Intersegment Eliminations relates to the programming provided to the Residential Services and Business Services segments by TWC-owned and/or operated regional sports networks 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, net). 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. View source version on businesswire.com: http://www.businesswire.com/news/home/20160428005516/en/ |