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Time Warner Cable Reports 2012 Fourth-Quarter And Full-Year Results

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 more than 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 managed and outsourced information technology solutions and cloud services. Time Warner Cable Media, the advertising 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 and Presentation Slides 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, January 31, 2013. 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 Reports 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.

CONSOLIDATED BALANCE SHEET

(Unaudited)

 
        December 31,
2012     2011
(in millions)
ASSETS
Current assets:
Cash and equivalents $ 3,304 $ 5,177
Short-term investments in U.S. Treasury securities 150
Receivables, less allowances of $65 million and $62 million
as of December 31, 2012 and 2011, respectively 883 767
Deferred income tax assets 317 267
Other current assets   223     187  
Total current assets 4,877 6,398
Investments 87 774
Property, plant and equipment, net 14,742 13,905
Intangible assets subject to amortization, net 641 228
Intangible assets not subject to amortization 26,011 24,272
Goodwill 2,889 2,247
Other assets   562     452  
Total assets $ 49,809   $ 48,276  
 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable $ 653 $ 545
Deferred revenue and subscriber-related liabilities 183 169
Accrued programming expense 872 807
Current maturities of long-term debt 1,518 2,122
Mandatorily redeemable preferred equity issued by a subsidiary 300
Other current liabilities   1,799     1,727  
Total current liabilities 5,325 5,370
Long-term debt 25,171 24,320
Mandatorily redeemable preferred equity issued by a subsidiary 300
Deferred income tax liabilities, net 11,280 10,198
Other liabilities 750 551
TWC shareholders’ equity:
Common stock, $0.01 par value, 297.7 million and 315.0 million shares issued and
outstanding as of December 31, 2012 and 2011, respectively 3 3
Additional paid-in capital 7,576 8,018
Retained earnings 363 68
Accumulated other comprehensive loss, net   (663 )   (559 )
Total TWC shareholders’ equity 7,279 7,530
Noncontrolling interests   4     7  
Total equity   7,283     7,537  
Total liabilities and equity $ 49,809   $ 48,276  
 

See accompanying notes.

 
 

TIME WARNER CABLE INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited)

 
                            Three Months Ended     Year Ended
December 31, December 31,
2012     2011 2012     2011
(in millions, except per share data)
Revenue $ 5,485 $ 4,993 $ 21,386 $ 19,675
Costs and expenses:
Cost of revenue (a) 2,565 2,283 9,942 9,138
Selling, general and administrative (a) 926 821 3,620 3,311
Depreciation 777 756 3,154 2,994
Amortization 31 10 110 33
Merger-related and restructuring costs 17 34 115 70
Asset impairments       60         60  
Total costs and expenses   4,316     3,964     16,941     15,606  
Operating Income 1,169 1,029 4,445 4,069
Interest expense, net (402 ) (406 ) (1,606 ) (1,518 )
Other income (expense), net   4     (5 )   497     (89 )
Income before income taxes 771 618 3,336 2,462
Income tax provision   (257 )   (54 )   (1,177 )   (795 )
Net income 514 564 2,159 1,667
Less: Net income attributable to noncontrolling interests   (1 )       (4 )   (2 )
Net income attributable to TWC shareholders $ 513   $ 564   $ 2,155   $ 1,665  
 
Net income per common share attributable to
TWC common shareholders:
Basic $ 1.70   $ 1.76   $ 6.97   $ 5.02  
Diluted $ 1.68   $ 1.75   $ 6.90   $ 4.97  
Average common shares outstanding:
Basic   300.7     317.8     307.8     329.7  
Diluted   305.6     323.1     312.4     335.3  
 
Cash dividends declared per share $ 0.56   $ 0.48   $ 2.24   $ 1.92  
 

——————————

(a) Cost of revenue and selling, general and administrative expenses exclude depreciation.

 

 

See accompanying notes.

 
 

TIME WARNER CABLE INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(Unaudited)

 
       

Year Ended December 31,

                            2012     2011
(in millions)
OPERATING ACTIVITIES
Net income $ 2,159 $ 1,667
Adjustments for noncash and nonoperating items:
Depreciation 3,154 2,994
Amortization 110 33
Asset impairments 60
(Income) loss from equity-method investments, net of cash distributions (426 ) 109
Pretax gain on sale of investment in Clearwire (64 )
Deferred income taxes 562 638
Equity-based compensation 130 112
Excess tax benefit from equity-based compensation (81 ) (48 )
Changes in operating assets and liabilities, net of acquisitions and dispositions:
Receivables (63 ) (25 )
Accounts payable and other liabilities (26 ) 202
Other changes   70     (54 )
Cash provided by operating activities   5,525     5,688  
   
INVESTING ACTIVITIES
Capital expenditures (3,095 ) (2,937 )
Acquisitions and investments, net of cash acquired and distributions received (1,308 ) (630 )
Proceeds from SpectrumCo’s sale of spectrum licenses 1,112
Proceeds from sale of investment in Clearwire 64
Short-term investments in U.S. Treasury securities (150 )
Other investing activities   32     37  
Cash used by investing activities   (3,345 )   (3,530 )
 
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt 2,258 3,227
Repayments of long-term debt (2,100 )
Repayments of long-term debt assumed in acquisitions (1,730 ) (44 )
Debt issuance costs (26 ) (25 )
Proceeds from exercise of stock options 140 114
Taxes paid in cash in lieu of shares issued for equity-based compensation (45 ) (29 )
Excess tax benefit from equity-based compensation 81 48
Dividends paid (700 ) (642 )
Repurchases of common stock (1,850 ) (2,657 )
Acquisition of noncontrolling interest (32 )
Other financing activities   (49 )   (20 )
Cash used by financing activities   (4,053 )   (28 )
 
Increase (decrease) in cash and equivalents (1,873 ) 2,130
Cash and equivalents at beginning of year   5,177     3,047  
Cash and equivalents at end of year $ 3,304   $ 5,177  
 

See accompanying notes.

 

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

1. ITEMS AFFECTING COMPARABILITY

The following items affected the comparability of Time Warner Cable Inc.’s (“TWC” or the “Company”) results for the three months and year ended December 31, 2012 and 2011:

 
(in millions, except per share data)  

 

   

 

 

 

 

 

  OIBDA (a)   D&A (a)

Operating Income

Other (a)

Income Tax Provision

TWC Net

Income (a)

Diluted

EPS (a)

4th Quarter 2012:                                          
As reported $ 1,977 $ (808) $ 1,169 $ (399) $ (257) $ 513 $ 1.68
Year-over-year change, as reported:

$

$

182

$

(42)

$

140

$

12

$

(203)

$

(51)

$

(0.07)

%

   

10.1%

   

5.5%

   

13.6%

   

(2.9%)

   

375.9%

   

(9.0%)

   

(4.0%)

 

 

 

 

 

 

 

 

 

Items affecting comparability:
Merger-related and restructuring costs 17 17 (6) 11 0.03

Loss on equity award reimbursement obligation to Time Warner (b)

4 (2) 2 0.01

Impact of certain state tax matters (c)

 

   

   

   

   

(47)

   

(47)

   

(0.15)

 

 

 

 

 

 

 

 

 

 
As adjusted $ 1,994 $ (808) $ 1,186 $ (395) $ (312) $ 479 $ 1.57
Year-over-year change, as adjusted:

$

$

105

$

(42)

$

63

$

8

$

(39)

$

32

$

0.19

%

   

5.6%

   

5.5%

   

5.6%

   

(2.0%)

   

14.3%

   

7.2%

   

13.8%

 

 

 

 

 

 

 

 

4th Quarter 2011:                                          
As reported   $ 1,795   $ (766)   $ 1,029   $ (411)   $ (54)   $ 564   $ 1.75
 
Items affecting comparability:
Merger-related and restructuring costs 34 34 (14) 20 0.06
Asset impairments (d) 60 60 (24) 36 0.11

Loss on equity award reimbursement obligation to Time Warner (b)

8 (3) 5 0.01
Change in net deferred income tax liability
 

effective tax rate (e)

                    (178)     (178)     (0.55)
 
As adjusted   $ 1,889   $ (766)   $ 1,123   $ (403)   $ (273)   $ 447   $ 1.38
 
 

——————————

(a)  

OIBDA represents Operating Income before Depreciation and Amortization. D&A represents depreciation and amortization. Other consists of interestexpense, net, other income (expense), net, and net income attributable to noncontrolling interests. TWC net income represents net incomeattributable to TWC shareholders. Diluted EPS represents net income per diluted common share attributable to TWC common shareholders.

(b)

Pursuant to an agreement with Time Warner Inc. (“Time Warner”), TWC is obligated to reimburse Time Warner for the cost of certain Time Warnerequity awards held by TWC employees upon exercise of such awards. Amounts represent the change in the reimbursement obligation, whichfluctuates primarily with the fair value and expected volatility of Time Warner common stock, and changes in fair value are recorded in other income(expense), net, in the period of change.

(c) Amount primarily represents a benefit recorded as a result of a California state tax law change.
(d)

In early 2012, TWC ceased making its existing wireless service available to new wireless customers. As a result, during the fourth quarter of 2011, theCompany impaired $60 million of assets related to the provision of wireless service that would no longer be utilized.

(e)

During the fourth quarter of 2011, TWC completed its income tax returns for the 2010 taxable year, its first full-year income tax returns subsequentto TWC’s separation from Time Warner on March 12, 2009 (the “Separation”), reflecting the income tax positions and state income taxapportionments of TWC as a standalone taxpayer. Based on these returns, the Company concluded that an approximate 65 basis point change in theestimate of the effective tax rate applied to calculate its net deferred income tax liability was required. As a result, TWC recorded a noncash incometax benefit of $178 million.

 
 
(in millions, except per share data)  

 

   

 

 

 

 

 

  OIBDA (a)   D&A (a)

Operating Income

Other (a)

Income Tax Provision

TWC Net Income (a)

Diluted

EPS (a)

Full Year 2012:                                          
As reported $ 7,709 $ (3,264 ) $ 4,445 $ (1,113 ) $ (1,177 ) $ 2,155 $ 6.90
Year-over-year change, as reported:
  $ $ 613 $ (237 ) $ 376 $ 496 $ (382 ) $ 490 $ 1.93
 

%

  8.6 %   7.8 %   9.2 %   (30.8 %)   48.1 %   29.4 %     38.8 %
 
Items affecting comparability:
Merger-related and restructuring costs 115 115 (46 ) 69 0.22
Asset impairments (b) 12 (5 ) 7 0.02

Gain on SpectrumCo’s sale of spectrum licenses (c)

(430 ) 169 (261 ) (0.84 )
Gain on sale of investment in Clearwire (d) (64 ) (19 ) (83 ) (0.27 )

Loss on equity award reimbursement obligation to Time Warner (e)

9 (4 ) 5 0.02

Change in net deferred income tax liability effective tax rate (f)

(63 ) (63 ) (0.20 )
Impact of certain state tax matters (g) (47 ) (47 ) (0.15 )

Impact of partnership basis difference (h)

                  15     15     0.05  
 
As adjusted $ 7,824 $ (3,264 ) $ 4,560 $ (1,586 ) $ (1,177 ) $ 1,797 $ 5.75
Year-over-year change, as adjusted:
$ $ 598 $ (237 ) $ 361 $ 18 $ (155 ) $ 224 $ 1.06
 

%

  8.3 %   7.8 %   8.6 %   (1.1 %)   15.2 %   14.2 %     22.6 %
 
Full Year 2011:                                          

As reported

  $ 7,096     $ (3,027 )   $ 4,069     $ (1,609 )   $ (795 )   $ 1,665     $ 4.97  
 
Items affecting comparability:
Merger-related and restructuring costs 70 70 (28 ) 42 0.12
Asset impairments (i) 60 60 (24 ) 36 0.11

Loss on equity award reimbursement obligation to Time Warner (e)

5 (2 ) 3 0.01

Change in net deferred income tax liability effective tax rate (j)

(178 ) (178 ) (0.53 )

Impact of domestic production activities deduction

(9 ) (9 ) (0.03 )

Impact of expired Time Warner stock options, net (k)

                  14     14     0.04  
 
As adjusted   $ 7,226     $ (3,027 )   $ 4,199     $ (1,604 )   $ (1,022 )   $ 1,573     $ 4.69  
 
(a)  

OIBDA represents Operating Income before Depreciation and Amortization. D&A represents depreciation and amortization. Other consists of interestexpense, net, other income (expense), net, and net income attributable to noncontrolling interests. TWC net income represents net incomeattributable to TWC shareholders. Diluted EPS represents net income per diluted common share attributable to TWC common shareholders.

(b) Amount represents an impairment of TWC’s investment in Canoe Ventures LLC.
(c)

On August 24, 2012, SpectrumCo, LLC (“SpectrumCo”) of which TWC owns 31.2%, sold all of its advanced wireless spectrum licenses to CellcoPartnership (doing business as Verizon Wireless).

(d)

On September 27, 2012, the Company sold all of its investment in Clearwire Corporation (“Clearwire”). Income tax provision amount includes a $46million benefit related to the reversal of a valuation allowance against a deferred income tax asset associated with the Company’s investment inClearwire.

(e)

Pursuant to an agreement with Time Warner, TWC is obligated to reimburse Time Warner for the cost of certain Time Warner equity awards held byTWC employees upon exercise of such awards. Amounts represent the change in the reimbursement obligation, which fluctuates primarily with thefair value and expected volatility of Time Warner common stock, and changes in fair value are recorded in other income (expense), net, in the periodof change.

(f)

Amount represents a benefit related to a change in the tax rate applied to calculate the Company’s net deferred income tax liability as a result of aninternal reorganization effective on September 30, 2012.

(g) Amount primarily represents a benefit recorded as a result of a California state tax law change.
(h) Amount represents a charge related to the recording of a deferred income tax liability associated with a partnership basis difference.
(i)

In early 2012, TWC ceased making its existing wireless service available to new wireless customers. As a result, during the fourth quarter of 2011, theCompany impaired $60 million of assets related to the provision of wireless service that would no longer be utilized.

(j)

During the fourth quarter of 2011, TWC completed its income tax returns for the 2010 taxable year, its first full-year income tax returns subsequentto the Separation, reflecting the income tax positions and state income tax apportionments of TWC as a standalone taxpayer. Based on thesereturns, the Company concluded that an approximate 65 basis point change in the estimate of the effective tax rate applied to calculate its netdeferred income tax liability was required. As a result, TWC recorded a noncash income tax benefit of $178 million.

(k)

Amount represents the impact of the reversal of deferred income tax assets associated with Time Warner stock option awards held by TWCemployees, net of excess tax benefits realized upon the exercise of TWC stock options or vesting of TWC restricted stock units.

 

2. USE OF NON-GAAP FINANCIAL MEASURES

In discussing its 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 OIBDA less capital expenditures, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow, which the Company defines as follows:

  • OIBDA ( Operating Income before Depreciation and Amortization) means Operating Income before depreciation of tangible assets and amortization of intangible assets.
  • Adjusted OIBDA means OIBDA excluding the impact, if any, of noncash impairments of goodwill, intangible and fixed assets; gains and losses on asset sales; merger-related and restructuring costs; and costs associated with certain equity awards granted to employees to offset value lost as a result of the Separation.
  • Adjusted OIBDA less capital expenditures means Adjusted OIBDA minus capital expenditures.
  • Adjusted net income attributable to TWC shareholders means net income attributable to TWC shareholders (as defined under GAAP) excluding the impact, if any, of noncash impairments of goodwill, intangible and fixed assets and investments; gains and losses on asset sales; merger-related and restructuring costs; changes in the Company’s equity award reimbursement obligation to Time Warner; certain changes to income tax provision; and costs associated with certain equity awards granted to employees to offset value lost as a result of the Separation; as well as the impact of taxes and noncontrolling interests on the above items. Similarly, Adjusted Diluted EPS means net income per diluted common share attributable to TWC common shareholders excluding the above items.
  • Free Cash Flow means cash provided by operating activities (as defined under GAAP) excluding the impact, if any, of cash provided or used by discontinued operations, plus (i) any income taxes paid on investment sales and (ii) any excess tax benefit from equity-based compensation, less (i) capital expenditures, (ii) cash paid for other intangible assets (excluding those associated with business combinations), (iii) partnership distributions to third parties and (iv) principal payments on capital leases.

Management uses OIBDA and Adjusted OIBDA, among other measures, in evaluating the performance of the Company’s business 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 net income attributable to noncontrolling interests, 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. Adjusted OIBDA less capital expenditures also allows management to evaluate performance including the effect of capital spending decisions. Adjusted OIBDA and Adjusted OIBDA less capital expenditures are also significant performance measures 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.

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