NEW YORK, NY – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its third quarter ended September 30, 2012.
Time Warner Cable Chief Executive Officer Glenn Britt said: “Our third-quarter results were good, with most trends similar to the preceding quarter. Our operating results were driven by continued strong performance in residential high-speed data and business services, an acceleration in high-margin political advertising and the contributions from our Insight systems. During the quarter, we remained focused on investing in growing our business, while at the same time ramping capital returns to our shareholders.”
Britt continued, “Our sympathies go out to those suffering in the wake of Hurricane Sandy, and we are thankful for the efforts of our employees who worked in many ways to help keep our customers informed and connected during the storm, as well as those who have been dealing with the many after-effects.”
Revenues for the third quarter of 2012 increased 9.2% from the third quarter of 2011 to $5.4 billion. Residential services revenues increased 7.0% to $4.5 billion and business services revenues grew 27.4% to $493 million, while advertising revenues increased 22.2% to $264 million.
Revenues for the third quarter of 2012 benefited from acquisitions, as detailed below.
Excluding the impact from acquisitions:
Residential services revenues
Residential services revenue growth was primarily driven by an increase in high-speed data revenues, partially offset by declines in video and voice revenues.
- The growth in residential high-speed data revenues was the result of growth in high-speed data subscribers and an increase in average revenues per subscriber (due to both price increases and a greater percentage of subscribers purchasing higher-priced tiers of service).
- Residential video revenues decreased driven by declines in video subscribers and transactional video-on-demand revenues, partially offset by price increases, a greater percentage of subscribers purchasing higher-priced tiers of service and increased revenues from equipment rental charges.
- Residential voice revenues decreased slightly due to a decrease in average revenues per subscriber, primarily due to promotional offers, partially offset by growth in voice subscribers.
Business services revenues
Business services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in Metro Ethernet revenues.
Advertising revenues increased primarily as a result of increases in political advertising and revenues from advertising inventory sold on behalf of other video distributors.
Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the third quarter of 2012 increased 9.2% from the third quarter of 2011 to $1.9 billion. The increase was driven by revenue growth, partially offset by a 9.2% increase in operating expenses.
Operating expenses grew primarily due to higher employee costs, video programming expenses, other operating costs and voice costs. Employee costs were up 10.0% to $1.1 billion, due to higher headcount (primarily driven by acquisitions and organic growth in business services, partially offset by an organic decline in residential services) and higher compensation costs per employee. Pension costs increased $15 million. Video programming expenses grew 8.2% to $1.2 billion due to an increase in average monthly video programming costs per video subscriber and a net increase in video subscribers (primarily due to the acquisition of Insight offset, in part, by an organic decline in video subscribers). Average monthly video programming costs per video subscriber increased 6.1% year-over-year to $31.45 for the third quarter of 2012, primarily driven by contractual rate increases, partially offset by a decline in transactional video-on-demand costs. For the third quarter of 2012 and 2011, video programming costs were reduced by approximately $5 million and $10 million, respectively, due to net changes in cost estimates for programming services carried without a contract, changes in programming audit reserves and certain contract settlements. Voice costs were up 11.0% to $151 million, primarily as a result of an increase in voice subscribers due to both organic growth and the Insight acquisition, partially offset by a decrease in delivery costs per subscriber related to the in-sourcing of voice transport, switching and interconnection services.
Operating Income for the third quarter of 2012 increased 9.2% from the third quarter of 2011 to $1.1 billion, driven by higher Adjusted OIBDA, partially offset by higher depreciation and amortization expenses primarily as a result of the Company’s recent acquisitions (largely Insight). The increase in depreciation expense was partially offset by certain assets acquired in the 2006 transactions with Adelphia Communications Corporation and Comcast Corporation that were fully depreciated as of July 31, 2012.
Adjusted OIBDA less Capital Expenditures for the first nine months of 2012 totaled $3.6 billion, an 8.9% increase over the first nine months of 2011, due to higher Adjusted OIBDA, partially offset by higher capital expenditures. Capital Expenditures were $2.2 billion for the first nine months of 2012, a 9.8% increase over the first nine months of 2011, largely reflecting higher spending in line extensions, support capital, customer premise equipment and scalable infrastructure.
Net Income Attributable to TWC Shareholders was $808 million, or $2.64 per basic common share and $2.60 per diluted common share, for the third quarter of 2012 compared to $356 million, or $1.09 per basic common share and $1.08 per diluted common share, for the third quarter of 2011.The growth in net income attributable to TWC shareholders resulted primarily from a change in other income (expense), net, and growth in Operating Income, partially offset by higher income tax provision (which included a net benefit from certain tax matters) and interest expense, net. The change in other income (expense), net, was primarily due to third-quarter 2012 investment-related gains (SpectrumCo, LLC and Clearwire Corporation) and a decline in losses from Clearwire Communications LLC as the Company’s investment was reduced to $0 during the third quarter of 2011.
Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude the investment-related gains (SpectrumCo and Clearwire) and certain other items affecting the comparability of TWC’s results for the third quarters of 2012 and 2011 detailed in Note 1 to the accompanying consolidated financial statements, were $438 million and $1.41, respectively, for the third quarter of 2012 compared to $366 million and $1.11, respectively, for the third quarter of 2011. These increases were primarily due to higher Operating Income and a change in other income (expense), net, partially offset by higher income tax provision and interest expense, net. The change in other income (expense), net, was primarily due to a decline in losses from Clearwire Communications as the Company’s investment was reduced to $0 during the third quarter of 2011. Additionally, Adjusted Diluted EPS for the third quarter of 2012 benefited from lower average common shares outstanding as a result of share repurchases under the Company’s stock repurchase program.
Free Cash Flow for the first nine months of 2012 decreased 16.6% to $2.0 billion from $2.4 billion in the first nine months of 2011, due mainly to lower cash provided by operating activities and an increase in capital expenditures. Cash Provided by Operating Activities for the first nine months of 2012 was $4.1 billion, a 5.3% decrease from $4.3 billion in the first nine months of 2011. This decrease was driven by a significant income tax refund (received in the first quarter of 2011) and increases in income tax payments, net interest payments and pension plan contributions, partially offset by higher Adjusted OIBDA.
Net Debt and Mandatorily Redeemable Preferred Equity totaled $23.5 billion as of September 30, 2012 compared to $21.6 billion as of December 31, 2011, as the cash used for the acquisition of Insight, share repurchases and dividend payments was greater than Free Cash Flow and the proceeds from the sale of SpectrumCo’s advanced wireless spectrum licenses.
RETURN OF CAPITAL
Time Warner Cable returned $673 million to shareholders during the quarter. Share repurchases during the third quarter of 2012 totaled $500 million or 5.7 million shares of common stock. As of September 30, 2012, $2.8 billion remained under the Company’s share repurchase authorization. Time Warner Cable also paid a regular dividend of $0.56 per share of common stock, $173 million in aggregate, during the third quarter of 2012.
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 OIBDA less capital expenditures, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow. Refer to Note 2 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 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, through its NaviSite subsidiary, 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, www.navisite.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 Monday, November 5, 2012. 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.
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