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Time Warner Cable Reports 2015 Second-Quarter Results

Release Date: 07/30/2015

Best Ever Overall Q2 Subscriber Performance, Including First Positive Q2 Customer Relationship Net Additions Since 2008

Aggressive Operating and Capital Investments Driving Dramatic Improvements in Customer Service and Operating Performance

Solid Revenue Growth of 3.5%

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NEW YORK, July 30, 2015 – Time Warner Cable Inc. (NYSE: TWC) today reported financial results for its second quarter ended June 30, 2015.

Time Warner Cable Chairman and CEO Rob Marcus said: “We delivered very strong operational results in the second quarter, providing yet another clear indication that our plan is working. We achieved record Q2 subscriber results across nearly every category, setting us up for accelerating financial performance as we look forward to the next phase of our plan. We intend to use the time between the signing and closing of the Charter deal to further strengthen our operations."

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

HIGHLIGHTS

Financial Highlights

  • Second-quarter 2015 revenue grew 3.5% year over year with Business Services revenue up 16.2% and Residential Services revenue up 2.1%.
  • Second-quarter Adjusted OIBDA was $2.0 billion – a 1.2% decrease year over year as a result of continued aggressive investments, as well as higher programming costs and pension expense. Excluding the $27 million increase in pension expense, Adjusted OIBDA would have been flat.
  • Higher depreciation expense from “TWC Maxx” and other investments also reduced second-quarter Operating Income to $1.0 billion.

Operational Highlights

  • Record second-quarter residential subscriber performance:
    • Residential video net declines of 45,000 – best second quarter since 2008
    • Residential high-speed data net additions of 172,000 – best second quarter since 2008
    • Residential voice net additions of 252,000 – best second quarter eve
    • Residential triple play net additions of 233,000 – best second quarter ever
    • Residential customer relationship net additions of 66,000 – best second quarter ever and first positive second quarter net additions since 200
  • First-half capital expenditures of $2.4 billion reflect the Company’s continued accelerated investment in “TWC Maxx,” improved customer experience and network expansion.
    • TWC Maxx, including “all digital” conversion and Internet speeds of up to 300 Mbps, was completed in Austin in mid-April, is well underway in Kansas City, Dallas, Raleigh, San Antonio, Charlotte and Hawaii and will begin in San Diego in 2015.
    • Also, the Company has accelerated the deployment of TWC Maxx in Wilmington and Greensboro in 2015.
    • TWC continued to upgrade customer premise equipment to improve its customers’ experience. In the first six months of 2015, TWC deployed nearly 5.6 million new set-top boxes, digital adapters and advanced modems in customers’ homes.
    • During the first six months of 2015, TWC further grew its serviceable Business Services opportunity by adding nearly 32,000 commercial buildings to its network.
  • Investments in network reliability and customer care continued to contribute to meaningful year-over-year operational improvements in the second quarter.
    • 530,000 fewer repair calls to TWC call centers year over year.
    • 15% reduction in repair-related truck rolls per customer relationship.
    • 98% on-time percentage for customer appointments within the Company’s industry-leading one-hour appointment window.
    • First-visit problem resolution improved by 10%.

CONSOLIDATED REVENUE AND PROFITABILITY RESULTS

Revenue for the second 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 second quarter of 2015 decreased 1.2% driven by a 6.1% year-over-year increase in operating expenses, partially offset by revenue growth.  

The increase in operating expenses was primarily due to higher programming, employee, content and maintenance 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. The increase in content costs was driven by higher content costs at SportsNet LA, a regional sports network carrying the Los Angeles Dodgers’ baseball games and other sports programming.

Operating Income for the second quarter of 2015 decreased 11.5% primarily due to higher depreciation expense and merger-related and restructuring costs and lower Adjusted OIBDA. Merger-related and restructuring costs for the second quarter of 2015 included $56 million of Charter merger-related costs, $13 million of Comcast merger-related costs and $13 million of restructuring costs primarily associated with employee terminations. Merger-related and restructuring costs for the second quarter of 2014 included $49 million of Comcast merger-related costs, $3 million of DukeNet merger-related costs and $9 million of restructuring costs primarily associated with employee terminations and other exit costs.

DETAILED SEGMENT RESULTS

Residential Service

Selected Residential Services Financial Results

Residential Services revenue increased as a result of an increase in high-speed data revenue, partially offset by decreases in video and voice revenue.

  • The growth 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 video revenue decreased due to a year-over-year decline in video subscribers, partially offset by an increase in average revenue per subscriber primarily as a result of price increases, higher transactional video-on-demand revenue (due to the May 2015 Mayweather vs. Pacquiao fight) and growth in premium network revenue.
  • Residential voice revenue decreased due to lower average revenue per subscriber offset, in part, by growth in voice subscribers.

Residential Services Adjusted OIBDA decreased driven by a 5.7% increase in operating costs, partially offset by the increase in revenue discussed above. The increase in operating costs resulted from higher programming, sales and marketing, technical operations and customer care costs, partially offset by lower other operating costs. Employee costs (which are included in each category, as applicable) were impacted by a $14 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 8.7% to $1.4 billion primarily due to an increase in average monthly programming costs per video subscriber, partially offset by a year-over-year decline in video subscribers.  Average monthly programming costs per residential video subscriber grew 11.6% year over year to $42.73 for the second quarter of 2015, primarily driven by contractual rate increases, the carriage of new networks and higher transactional video-on-demand costs.
  • Sales and marketing costs increased 10.2% to $389 million primarily due to increased sales-related employee costs as a result of higher compensation costs per employee and headcount growth.
  • Technical operations costs were up 8.4% to $361 million primarily due to headcount growth and increased maintenance costs, reflecting the Company’s continued investments to improve the customer experience.
  • Customer care costs increased 6.9% to $186 million primarily due to headcount growth, reflecting the Company’s continued investments to improve the customer experience.
  • Other operating costs decreased 20.3% to $173 million primarily due to lower bad debt expense.

Residential Services Subscriber Metrics

Business Services

Selected Business Services Financial Results

Business Services revenue growth was primarily due to increases in high-speed data and voice subscribers and growth in wholesale transport revenue (including cell tower backhaul revenue).

The increase in Adjusted OIBDA was driven by growth in revenue, partially offset by a 14.5% increase in operating costs and expenses, primarily due to increased headcount and higher compensation costs per employee, including a $5 million increase in pension expense.

Business Services Subscriber Metrics

Other Operations

Selected Other Operations Financial Results

Advertising revenue decreased primarily due to lower political advertising revenue, which was $3 million in the second quarter of 2015 compared to $15 million in the second 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 9.9% increase in operating costs and expenses, primarily related to higher content costs associated with SportsNet LA. Employee costs were impacted by a $1 million increase in pension expense.

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 2.6% to $739 million for the second quarter of 2015, primarily driven by increased maintenance expense, partially offset by lower costs as a result of operating efficiencies. Employee costs were impacted by a $7 million increase in pension expense.

CONSOLIDATED NET INCOME

Net Income Attributable to TWC Shareholders was $463 million, or $1.62 per basic and diluted common share, for the second quarter of 2015 compared to $499 million, or $1.77 per basic common share and $1.76 per diluted common share, for the second quarter of 2014.

Net income attributable to TWC shareholders decreased primarily due to a decrease in Operating Income and an increase in income tax provision, 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.

Adjusted Net Income Attributable to TWC Shareholders and Adjusted Diluted EPS, which exclude the Verizon Wireless gain discussed above, merger-related and restructuring costs and certain other items affecting the comparability of TWC’s results for 2015 and 2014 detailed in Note 2 to the accompanying consolidated financial statements, were $440 million and $1.54, respectively, for the second quarter of 2015 compared to $536 million and $1.89, respectively, for the second quarter of 2014.

SELECTED BALANCE SHEET AND CASH FLOW INFORMATION

Free Cash Flow for the first six months of 2015 was $847 million compared to $1.1 billion in the first six months of 2014, due mainly to an increase in capital expenditures, partially offset by an increase in cash provided by operating activities. Capital Expenditures, which totaled $2.4 billion for the first six 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 six months of 2015 was $3.2 billion, a 3.7% increase from the first six months of 2014. This increase was primarily driven by lower net income tax and net interest payments.

Net Debt, which totaled $22.6 billion as of June 30, 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 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, July 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., 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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