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Time Warner Cable Reports 2015 Fourth-Quarter and Full-Year Results

Release Date: 01/27/2016

Record Full-Year Subscriber Performance, Including Best Ever Customer Relationship Net Additions

First Full-Year Positive Video Subscriber Net Additions Since 2006

Accelerated Fourth-Quarter Revenue Growth of 4.9%

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NEW YORK, January 28, 2016 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its fourth quarter and full year ended December 31, 2015.

Time Warner Cable Chairman and CEO Rob Marcus said: “I’m incredibly proud of everything we achieved this quarter and in 2015. We made our network more reliable, our products more compelling and our customer service better. And, importantly, our subscriber improvement over the last eight quarters, including our record subscriber performance in 2015, has begun to show up in our financial results. As we begin 2016, we intend to continue to improve the customer experience and build value for our shareholders.” 

SELECTED CONSOLIDATED FINANCIAL RESULTS

HIGHLIGHTS

Financial Highlights

  • Revenue grew 4.9% for the fourth quarter and 3.9% for the full year – the highest fourth-quarter and full-year organic revenue growth in the last five years – driven by accelerated growth in Residential Services and strong growth in Business Services.
  • Adjusted OIBDA excluding pension expense was up slightly for the fourth quarter and full year.
  • Operating Income declined to $1.1 billion and $4.2 billion for the fourth quarter and full year, respectively, due to higher depreciation expense from “TWC Maxx” and other capital investments.

Operational Highlights

  • Strong fourth-quarter residential subscriber performance capped the best full-year residential subscriber performance ever
    • Customer relationship net additions of 200,000 for the fourth quarter and 618,000 for the full year
    • Video net additions of 54,000 for the fourth quarter and 32,000 for the full year
    • High-speed data net additions of 281,000 for the fourth quarter and 1,000,000 for the full year
    • Voice net additions of 227,000 for the fourth quarter and 1,036,000 for the full year
  • Significant investment during 2015 to improve customer experience and expand network
    • TWC Maxx, including “all digital” conversion and Internet speed increases (up to 300 Mbps), was completed in Austin, Kansas City, Dallas, Raleigh, Charlotte and San Antonio and was begun in Hawaii, Wilmington, Greensboro and San Diego
    • 10.5 million new set-top boxes, digital adapters and advanced modems deployed
    • 66,000 commercial buildings added to network
  • Impressive year-over-year improvements in key residential customer service metrics continued in the fourth quarter
    • 13% decrease in care calls per customer relationship
    • 19% reduction in repair-related truck rolls per customer relationship
    • 98% on-time percentage for customer appointments within industry-leading one-hour appointment arrival windows
    • 15% improvement in first-visit resolution

CONSOLIDATED REVENUE AND PROFITABILITY RESULTS

Revenue for the fourth quarter and full year of 2015 increased 4.9% and 3.9%, respectively, year over year as a result of revenue growth at the Residential Services and Business Services segments, partially offset by a decline in revenue at the Other Operations segment.

Adjusted Operating Income before Depreciation and Amortization (“Adjusted OIBDA”) for the fourth quarter and full year of 2015 decreased 0.4% and 1.1%, respectively, driven by year-over-year increases in operating expenses of 7.9% and 6.7%, respectively, partially offset by revenue growth.

For the fourth quarter, the growth in operating expenses was primarily due to increases in programming, employee, marketing and insurance 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 and a $27 million increase in pension expense.

For the full year, the growth in operating expenses was primarily due to increases in programming, employee and maintenance costs, as well as higher content costs at SportsNet LA, a regional sports network carrying the Los Angeles Dodgers’ baseball games and other sports programming, 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 and a $108 million increase in pension expense.

Operating expenses by segment are discussed further below under “Detailed Segment Results.”

Operating Income for the fourth quarter and full year of 2015 decreased 8.2% and 8.5%, respectively. For the fourth quarter, the decrease was primarily due to higher depreciation expense and merger-related costs and lower Adjusted OIBDA. For the full year, the decrease was primarily due to higher depreciation expense and lower Adjusted OIBDA.

Merger-related costs for the fourth quarters of 2015 and 2014 were $49 million and $35 million, respectively, and restructuring costs were $2 million and $3 million, respectively. Merger-related costs for the full years of 2015 and 2014 were $183 million and $198 million, respectively, and restructuring costs were $20 million and $27 million, respectively.

DETAILED SEGMENT RESULTS

Residential Service

Selected Residential Services Financial Results

Fourth-quarter 2015 Residential Services revenue increased primarily as a result of increases in high-speed data and voice revenue.  

  • The increase in residential high-speed data revenue was the result of growth in high-speed data subscribers, as well as an increase in average revenue per subscriber primarily due to increases in prices and equipment rental charges and a greater percentage of subscribers purchasing higher-priced tiers of service.
  • Residential voice revenue increased due to growth in voice subscribers offset, in part, by lower average revenue per subscriber.
  • Residential video revenue increased slightly due to an increase in average revenue per subscriber primarily the result of growth in video equipment rental and premium network revenue, partially offset by lower programming tier revenue.  

Full-year 2015 Residential Services revenue increased primarily as a result of an increase in high-speed data revenue, partially offset by a decrease in video revenue.  

  • The increase in residential high-speed data revenue was the result of growth in high-speed data subscribers, as well as an increase in average revenue per subscriber primarily due to increases in prices and equipment rental charges and a greater percentage of subscribers purchasing higher-priced tiers of service.
  • Residential voice revenue was essentially flat as lower average revenue per subscriber was offset by growth in voice subscribers.
  • Residential video revenue decreased due to a decline in average video subscribers, partially offset by an increase in average revenue per subscriber primarily the result of growth in video equipment rental and premium network revenue and higher transactional video-on-demand revenue (including the May 2015 Mayweather vs. Pacquiao fight), partially offset by lower programming tier revenue.  

Fourth-quarter 2015 Adjusted OIBDA was essentially flat, driven by the increase in revenue discussed above, partially offset by an 8.6% increase in operating costs. The increase in operating costs was the result of higher programming, sales and marketing and technical operations costs. Employee costs (which are included in each category, as applicable) were impacted by a $15 million increase in pension expense.

  • Programming costs (which include intercompany expense from the Other Operations segment for programming costs associated with the Company’s Los Angeles Lakers’ regional sports networks, local sports, news and lifestyle channels and SportsNet LA) grew 9.7% to $1.4 billion primarily due to an increase in average monthly programming costs per video subscriber.  Average monthly programming costs per residential video subscriber grew 9.9% year over year to $42.89 for the fourth quarter of 2015, primarily driven by contractual rate increases.
  • Sales and marketing costs increased 13.4% to $405 million primarily due to higher marketing costs and increased sales-related employee costs as a result of increased headcount and higher compensation costs per employee related to the Company’s subscriber growth initiatives, as well as higher pension expense.
  • Technical operations costs were up 7.7% to $376 million primarily due to increased maintenance and installation-related activities (reflecting subscriber growth and the Company’s continued investments to improve the customer experience), as well as higher pension expense.
  • Other operating costs increased 3.7% to $167 million due to increases in a number of other categories, including voice costs, partially offset by lower bad debt expense. 

Full-year 2015 Adjusted OIBDA decreased, driven by a 6.7% increase in operating costs, partially offset by the increase in revenue discussed above. The increase in operating costs was the result of higher programming, sales and marketing, technical operations and customer care costs, partially offset by a decrease in other operating costs. Employee costs (which are included in each category, as applicable) were impacted by a $58 million increase in pension expense.

  • Programming costs (which include intercompany expense from the Other Operations segment for programming costs associated with the Company’s Los Angeles Lakers’ regional sports networks, local sports, news and lifestyle channels and SportsNet LA) grew 8.6% to $5.5 billion primarily due to an increase in average monthly programming costs per video subscriber, partially offset by a decline in average video subscribers. Average monthly programming costs per residential video subscriber grew 10.6% year over year to $42.58 for the full year of 2015, primarily driven by contractual rate increases and carriage of new networks (including SportsNet LA).
  • Sales and marketing costs increased 7.0% to $1.6 billion primarily due to increased sales-related employee costs as a result of increased headcount and higher compensation costs per employee related to the Company’s subscriber growth initiatives, as well as higher pension expense.
  • Technical operations costs were up 7.5% to $1.5 billion primarily due to increased headcount and maintenance and installation-related activities (reflecting subscriber growth and the Company’s continued investments to improve the customer experience), as well as higher pension expense.
  • Customer care costs increased 6.2% to $749 million primarily due to increased headcount and higher compensation costs per employee (reflecting subscriber growth and the Company’s continued investments to improve the customer experience).
  • Other operating costs decreased 3.6% to $704 million primarily due to lower bad debt expense, partially offset by increases in a number of other categories.

Residential Services Subscriber Metrics

Business Services

Selected Business Services Financial Results

Business Services revenue growth for both the fourth quarter and full year was primarily due to increases in high-speed data and voice subscribers and growth in wholesale transport revenue (including cell tower backhaul revenue).

For both the fourth quarter and full year, the increase in Adjusted OIBDA was driven by growth in revenue, partially offset by an increase in operating costs of 18.3% and 15.9%, respectively. The growth in operating costs was primarily due to increased headcount and higher compensation costs per employee, as well as
growth in programming and marketing costs.

Business Services Subscriber Metrics

Other Operations

Selected Other Operations Financial Results

For both the fourth quarter and full year, advertising revenue decreased primarily due to lower political advertising revenue, which was $8 million and $18 million in the fourth quarter and full year of 2015, respectively, compared to $61 million and $113 million in the fourth quarter and full year of 2014, respectively.

For both the fourth quarter and full year, other revenue increased primarily due to affiliate fees from the Residential Services segment as well as other distributors of the Los Angeles Lakers’ regional sports networks and SportsNet LA.

For the fourth quarter, the decrease in Adjusted OIBDA was driven by a decrease in revenue.

For the full year, the decrease in Adjusted OIBDA was driven by a decrease in revenue and an increase in operating costs of 6.1%, primarily related to higher content costs associated with SportsNet LA. 

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 4.3% year over year to $774 million for the fourth quarter of 2015 and 3.5% to $3.0 billion for the full year of 2015.

For the fourth quarter, this increase was driven by higher compensation costs per employee and increased insurance expense. For the full year, this increase was driven by increased maintenance expense, higher compensation costs per employee and an increase in insurance expense. Additionally, pension costs increased $6 million and $27 million for the fourth quarter and full year of 2015, respectively. For both the fourth quarter and full year, these increases were partially offset by lower costs as a result of operating efficiencies. 

CONSOLIDATED NET INCOME

Fourth-quarter 2015 Net Income Attributable to TWC Shareholders was $486 million, or $1.70 per basic and diluted common share, compared to $554 million, or $1.96 per basic common share and $1.95 per diluted common share, in the prior year quarter. Full-year 2015 net income attributable to TWC shareholders was $1.8 billion, or $6.46 per basic common share and $6.44 per diluted common share, compared to $2.0 billion, or $7.21 per basic common share and $7.17 per diluted common share, in the prior year.

For the fourth quarter, net income attributable to TWC shareholders decreased primarily due to a decrease in Operating Income, partially offset by a decrease in income tax provision. For the full year, net income attributable to TWC shareholders decreased primarily due to a decrease in Operating Income, partially offset by an increase in other income, net, which included a $120 million gain from the settlement of certain terms of an agency agreement with Verizon Wireless in the second quarter of 2015, as well as a decrease in income tax provision.

Fourth-quarter 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 3 to the accompanying consolidated financial statements, were $517 million and $1.80, respectively, for the fourth quarter of 2015 compared to $577 million and $2.03, respectively, for the fourth quarter of 2014.

Full-year 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 3 to the accompanying consolidated financial statements, were $1.9 billion and $6.62, respectively, for 2015 compared to $2.1 billion and $7.56, respectively, for 2014. 

SELECTED BALANCE SHEET AND CASH FLOW INFORMATION

Free Cash Flow for the full year of 2015 decreased 7.5% to $2.2 billion from $2.3 billion in 2014, due mainly to an increase in capital expenditures, partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $4.4 billion in 2015, 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 full year of 2015 was $6.5 billion, a 3.0% increase from 2014. This increase was primarily driven by a change in working capital and lower net interest payments, partially offset by higher net income tax payments and a decrease in Adjusted OIBDA. 

Net Debt, which totaled $21.3 billion as of December 31, 2015, decreased from December 31, 2014 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, January 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 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.

Contacts

Corporate Communications

Bobby Amirshahi (212) 364-8292

Eric Mangan (212) 364-8297

Investor Relations

Tom Robey (212) 364-8218

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