Form 10-Q TIME WARNER CABLE INC. For: Mar 31
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2015 or
¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-33335
TIME WARNER CABLE INC.
(Exact name of registrant as specified in its charter)
Delaware | 84-1496755 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
60 Columbus Circle
New York, New York 10023
(Address of principal executive offices) (Zip Code)
(212) 364-8200
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ |
Accelerated filer ¨ | |||||
Non-accelerated filer ¨ (Do not check if a smaller reporting company) |
Smaller reporting company ¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
Description of Class | Shares Outstanding as of April 28, 2015 |
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Common Stock $0.01 par value |
282,518,129 |
Table of Contents
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND OTHER FINANCIAL INFORMATION
Table of Contents
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
INTRODUCTION
Managements discussion and analysis of results of operations and financial condition (MD&A) is a supplement to the accompanying consolidated financial statements and provides additional information on Time Warner Cable Inc.s (together with its subsidiaries, TWC or the Company) business, any recent developments, financial condition, cash flows and results of operations. MD&A is organized as follows:
| Overview. This section provides a general description of TWCs business, as well as any recent developments the Company believes are important in understanding the results of operations and financial condition or in understanding anticipated future trends. This section also provides a summary of how the Companys operations are presented in the accompanying consolidated financial statements. |
| Results of operations. This section provides an analysis of the Companys results of operations for the three months ended March 31, 2015. This analysis is presented on both a consolidated and reportable segment basis. |
| Financial condition and liquidity. This section provides an analysis of the Companys financial condition as of March 31, 2015 and cash flows for the three months ended March 31, 2015. |
| Caution concerning forward-looking statements. This section provides a description of the use of forward-looking information appearing in this report, including in MD&A and the consolidated financial statements. Such information is based on managements current expectations about future events, which are subject to uncertainty and changes in circumstances. Refer to the Companys Annual Report on Form 10-K for the year ended December 31, 2014 (the 2014 Form 10-K) for a discussion of the risk factors applicable to the Company. |
OVERVIEW
TWC is among the largest providers of video, high-speed data and voice services in the U.S., with technologically advanced, well-clustered cable systems located mainly in five geographic areas New York State (including New York City), the Carolinas, the Midwest (including Ohio, Kentucky and Wisconsin), Southern California (including Los Angeles) and Texas. TWCs mission is to connect its customers to the worldsimply, reliably and with superior service. As of March 31, 2015, TWC served approximately 15.4 million residential and business services customers who subscribed to one or more of its video, high-speed data and voice services. During the three months ended March 31, 2015, TWCs revenue increased 3.5% to approximately $5.8 billion.
Comcast Merger and Charter Transactions
On February 12, 2014, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Comcast Corporation (Comcast) whereby the Company agreed to merge with and into a 100% owned subsidiary of Comcast (the Comcast merger). On April 24, 2015, Comcast and the Company entered into a Termination Agreement wherein the parties agreed to terminate the Merger Agreement.
On April 25, 2014, Comcast entered into a binding agreement with Charter Communications, Inc. (Charter), which contemplated three transactions (the divestiture transactions): (1) a contribution, spin-off and merger transaction, (2) an asset exchange and (3) a sale of assets. The completion of the divestiture transactions would have resulted in the combined company divesting a net total of approximately 3.7 million video subscribers, a portion of which were TWC subscribers (primarily in the Midwest). On April 24, 2015, Comcast delivered a notice of termination of such agreement to Charter.
On March 31, 2015, Charter and Advance/Newhouse Partnership (A/N) announced that they and certain of their affiliates had reached a definitive agreement pursuant to which Charter would acquire Bright House Networks, LLC (Bright House Networks), subject to closing of the divestiture transactions and to TWCs right of first offer with respect to Bright House Networks. 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. As discussed further in Financial Statement PresentationReportable SegmentsOther Operations Segment, TWC receives a fee from A/N for providing Bright House Networks with high-speed data services and certain management functions, which is included in Other Operations revenue.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Reportable Segments
The Company has three reportable segments: Residential Services, Business Services and Other Operations, which have been determined based on how management evaluates and manages the business. For additional information about the components of each of the Companys reportable segments, as well as shared functions, refer to Financial Statement PresentationReportable Segments, below.
Residential Services Segment
TWC offers video, high-speed data and voice services, as well as security and home management services, to residential customers. As of March 31, 2015, the Company served 14.7 million residential services customers and, during the three months ended March 31, 2015, TWC generated approximately $4.7 billion of revenue from the provision of residential services, which represented 80.7% of TWCs total revenue.
TWCs video service provides over 300 channels (including, on average, over 200 high-definition (HD) channels) and nearly 20,000 video-on-demand choices, which, increasingly, consumers can watch on the device of their choosing, both inside and outside the home. TWCs high-speed data service is available in a range of speed (from up to 2 to up to 300 megabits per second (Mbps) downstream), price and consumption (unlimited, 30 gigabyte (GB) and 5 GB) levels and, for most high-speed data customers, includes access to a nationwide network of more than 300,000 Cable WiFi hotspots along with communications and Internet security features. TWCs voice service provides unlimited calling throughout the U.S. and to Canada, Puerto Rico, Mexico, China, Hong Kong and India, among others, and access to popular features in one simple package. TWCs IntelligentHome service provides state-of-the-art security and home management technology, taking advantage of TWCs always-on broadband network and around-the-clock security monitoring centers.
Residential Services programming costs represent a significant portion of the Companys operating costs and expenses and are expected to continue to increase, reflecting rate increases on existing programming services and the carriage of new networks. TWC expects that its programming costs as a percentage of video revenue will continue to increase, in part due to an increasingly competitive environment.
Business Services Segment
TWC offers a wide range of business high-speed data, networking, voice, video, hosting and cloud computing services. As of March 31, 2015, TWC served 701,000 business customers, including small and medium businesses; large enterprises; government, education and non-profit institutions; and telecommunications carriers. TWC offers business services at retail and wholesale using its own network infrastructure and third-party infrastructure as required to meet customer needs.
During the three months ended March 31, 2015, revenue from the provision of business services increased 16.9% to $781 million, which represented 13.5% of TWCs total revenue. The Company expects continued strong growth in Business Services revenue driven by an increase in the number of customers (the result of continued penetration of buildings currently on its network and investment to connect new buildings to its network) and revenue per customer (due to growing product penetration, demand for higher-priced tiers of service and price increases). Given the large opportunity and TWCs still modest share in business services, the Company has established a target of growing Business Services to exceed $5 billion in annual revenue by 2018.
Other Operations Segment
TWCs Other Operations segment principally consists of (i) Time Warner Cable Media (TWC Media), the advertising sales arm of TWC; (ii) the Companys regional sports networks that carry Los Angeles Lakers basketball games and other sports programming (Time Warner Cable SportsNet and Time Warner Cable Deportes and, collectively, the Lakers RSNs); (iii) the Companys local sports, news and lifestyle channels (e.g., Time Warner Cable News NY1); (iv) other operating revenue and costs, including those derived from A/N and home shopping network-related services; and (v) operating revenue and costs associated with SportsNet LA, a regional sports network carrying the Los Angeles Dodgers baseball games and other sports programming. During the three months ended March 31, 2015, TWC generated revenue from Other Operations of $398 million.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
As discussed further below in Financial Statement Presentation, TWC Media sells its video and online advertising inventory to local, regional and national advertising customers and also sells third-party advertising inventory on behalf of other video distributors, including, among others, Verizon Communications Inc.s (Verizon) FiOS, AT&T Inc.s (AT&T) U-verse and Charter. Advertising revenue generated by TWC Media is cyclical, benefiting in years that include political elections as a result of political candidate and issue-related advertising.
Competition
The operations of each of TWCs reportable segments face intense competition, both from existing competitors and, as a result of the rapid development of new technologies, services and products, from new entrants.
Residential Services Segment
TWC faces intense competition for residential customers from a variety of alternative communications, information and entertainment delivery sources. TWC competes with incumbent local telephone companies and overbuilders across each of its residential services. Some of these competitors offer a broad range of services with features and functions comparable to those provided by TWC and in bundles similar to those offered by TWC, sometimes including wireless service. Each of TWCs residential services also faces competition from other companies that provide services on a stand-alone basis. TWCs residential video service faces competition from direct broadcast satellite services, and increasingly from companies that deliver content to consumers over the Internet. TWCs residential high-speed data service faces competition from wireless Internet providers and direct broadcast satellite services. TWCs residential voice service faces competition from wireless voice providers, over-the-top phone services and other alternatives.
Business Services Segment
TWC faces significant competition as to each of its business services offerings. Its business high-speed data, networking and voice services face competition from a variety of telecommunications carriers, including incumbent local telephone companies. TWCs cell tower backhaul service also faces competition from traditional telephone companies as well as other telecommunications carriers, such as metro and regional fiber-based carriers. TWCs business video service faces competition from direct broadcast satellite providers. TWC also competes with cloud, hosting and related service providers and application-service providers.
Other Operations Segment
TWC faces intense competition in its advertising business across many different platforms and from a wide range of local and national competitors. Competition has increased and will likely continue to increase as new formats for advertising seek to attract the same advertisers. TWC competes for advertising revenue against, among others, local broadcast stations, national cable and broadcast networks, radio, newspapers, magazines and outdoor advertisers, as well as online advertising companies.
Financial Statement Presentation
Basis of Presentation
Reclassifications
Certain reclassifications have been made to the prior period financial information presented herein to conform to the current year presentation.
Consolidated
Revenue. The Company generates revenue from each of its reportable segments: Residential Services, Business Services and Other Operations, which includes revenue generated by TWC Media, the Lakers RSNs, SportsNet LA and other operating revenue, including amounts derived from A/N and home shopping network-related services. Each of the reportable segments is discussed below under Reportable Segments.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Operating costs and expenses
Programming and content. Programming and content costs include (i) programming costs for the Residential Services and Business Services segments and (ii) content costs, which include (a) the content acquisition costs associated with the Lakers RSNs and SportsNet LA and (b) other content production costs for the Lakers RSNs, SportsNet LA and the Companys local sports, news and lifestyle channels. Content acquisition costs for the Los Angeles Lakers basketball games and Los Angeles Dodgers baseball games are recorded as games are exhibited over the applicable season.
Sales and marketing. Sales and marketing costs consist of the costs incurred at the Residential Services, Business Services and Other Operations segments to sell and market the Companys services. Costs primarily include employee-related and third-party marketing costs (e.g., television, online, print and radio advertising). Employee-related costs primarily include costs associated with retail centers and activities related to direct sales and retention sales.
Technical operations. Technical operations costs consist of the costs incurred at the Residential Services, Business Services and Other Operations segments associated with the installation, repair and maintenance of the Companys distribution plant. Costs primarily include employee-related costs and materials costs associated with non-capitalizable activities.
Customer care. Customer care costs consist of the costs incurred at the Residential Services and Business Services segments associated with the Companys customer service activities. Costs primarily include employee-related costs and outsourced customer care costs.
Other operating. Other operating costs consist of all other operating costs incurred at the Residential Services, Business Services and Other Operations segments that are not specifically identified above, including Residential Services and Business Services video franchise and other fees. Other operating costs also include operating costs associated with broad corporate functions (e.g., accounting and finance, information technology, executive management, legal and human resources). In addition, other operating costs include functions supporting more than one reportable segment that are centrally managed, including costs associated with facilities (e.g., rent, property taxes and utilities), network operations (e.g., employee costs associated with central engineering activities), vehicles and procurement.
Reportable Segments
The Companys segment results include intercompany transactions related to programming provided to the Residential Services and Business Services segments by the Lakers RSNs, SportsNet LA and the Companys 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 and are eliminated in consolidation. Additionally, the operating costs described above that are associated with broad corporate functions or functions supporting more than one reportable segment are recorded as shared functions and are not allocated to the reportable segments. As such, the reportable segment results reflect how management views such segments in assessing financial performance and allocating resources and are not necessarily indicative of the results of operations that each segment would have achieved had they operated as stand-alone entities during the periods presented.
Residential Services Segment
Revenue. Residential Services segment revenue consists of revenue from video, high-speed data, voice and other services offered to residential subscribers. The Company sells video, high-speed data and voice services to residential subscribers separately and in bundled packages at rates lower than if the subscriber purchases each product on an individual basis. Revenue received from subscribers to bundled packages is allocated to each product in a pro-rata manner based on the standalone selling price of each of the respective services.
| Video. Video revenue includes subscriber fees for the Companys various tiers or packages of video programming services generally distinguished from one another by the number and type of programming networks they include. Video revenue also includes related equipment rental charges, installation charges, broadcast fees and fees collected on behalf of local franchising authorities and the Federal Communications Commission (the FCC). Additionally, video revenue includes revenue from the sale of premium networks, transactional video-on-demand (e.g., events and movies) and digital video recorder (DVR) service. |
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
| High-speed data. High-speed data revenue primarily includes subscriber fees for the Companys high-speed data services and related equipment rental and installation charges. The Company offers multiple tiers of high-speed data services providing various service speeds, data usage levels and other attributes to meet the different needs of its subscribers. In addition, high-speed data revenue includes fees received from third-party Internet service providers (e.g., Earthlink) whose online services are provided to some of TWCs customers. |
| Voice. Voice revenue includes subscriber fees for the Companys voice services, along with related installation charges, as well as fees collected on behalf of governmental authorities. |
| Other. Other revenue includes revenue from security and home management services and other residential subscriber-related fees. |
Operating costs and expenses. Residential Services segment operating costs and expenses include the operating costs and expenses that management believes are necessary to assess the performance of and allocate resources to the Residential Services segment. Such costs include programming costs, sales and marketing costs, technical operations costs, customer care costs, video franchise and other fees and other operating costs (e.g., high-speed data connectivity costs, voice network costs and bad debt expense). Employee costs directly attributable to the Residential Services segment are included within each operating cost and expense category as applicable. Operating costs and expenses exclude costs and expenses related to corporate functions and functions supporting more than one reportable segment that are centrally managed (e.g., facilities, network operations, vehicles and procurement) and are not within the control of segment management.
Business Services Segment
Revenue. Business Services segment revenue consists of revenue from video, high-speed data, voice, wholesale transport and other services offered to business customers. The Company sells video, high-speed data and voice services to business subscribers separately and in bundled packages, and the revenue is allocated to each product in a pro-rata manner based on the standalone selling price of each of the respective services.
| Video. Video revenue includes the same fee categories received from business video subscribers as described above under Residential Services video revenue. |
| High-speed data. High-speed data revenue primarily includes subscriber fees for the Companys high-speed data services and related installation charges. High-speed data revenue also includes amounts generated by the sale of commercial networking and point-to-point transport services, such as Metro Ethernet services. |
| Voice. Voice revenue includes subscriber fees for the Companys voice services, along with related installation charges, as well as fees collected on behalf of governmental authorities. |
| Wholesale transport. Wholesale transport revenue primarily includes amounts generated by the sale of point-to-point transport services offered to wireless telephone providers (i.e., cell tower backhaul) and other telecommunications carriers. |
| Other. Other revenue primarily includes revenue from enterprise-class, cloud-enabled hosting, managed applications and services and other business subscriber-related fees. |
Operating costs and expenses. Business Services segment operating costs and expenses include the operating costs and expenses that management believes are necessary to assess the performance of and allocate resources to the Business Services segment. Such costs are consistent with the operating costs and expense categories described above under Residential Services operating costs and expenses. Operating costs and expenses exclude costs and expenses related to corporate functions and functions supporting more than one reportable segment that are centrally managed (e.g., facilities, network operations, vehicles and procurement) and are not within the control of segment management.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Other Operations Segment
Revenue
| Advertising. Advertising revenue is generated through TWC Medias sale of video and online advertising inventory to local, regional and national advertising customers. The Company derives most of its advertising revenue from the sale of advertising inventory on cable networks owned by third parties. The rights to such advertising inventory are acquired by the Company in connection with its agreements to carry such networks or obtained through contractual agreements to sell advertising inventory on behalf of other video distributors (including, among others, Verizons FiOS, AT&Ts U-verse and Charter). The Company also generates advertising revenue from the sale of inventory on the Lakers RSNs, SportsNet LA and the Companys local sports, news and lifestyle channels (e.g., Time Warner Cable News NY1). |
| Other. Other revenue primarily includes (i) fees received from distributors of the Lakers RSNs and SportsNet LA; (ii) fees paid to TWC by A/N for (a) the ability to distribute the Companys high-speed data service and (b) TWCs management of certain functions, including, among others, the acquisition of programming rights, as well as the provision of certain functions, including engineering; and (iii) home shopping network-related revenue (including commissions earned on the sale of merchandise and carriage fees). Other revenue also includes intercompany revenue from the Residential Services and Business Services segments for programming provided by the Lakers RSNs, SportsNet LA and the Companys local sports, news and lifestyle channels. |
Operating costs and expenses. Other operating costs and expenses primarily include operating costs associated with TWC Media, the Lakers RSNs, SportsNet LA and the Companys local sports, news and lifestyle channels.
Shared Functions
Operating costs and expenses. Shared functions operating costs and expenses consist of 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 attributable to a reportable segment.
Merger-related and restructuring costs. All merger-related and restructuring costs incurred by the Company are recorded as shared functions.
Use of Operating Income before Depreciation and Amortization
In discussing its 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 Operating Income before Depreciation and Amortization (OIBDA), which the Company defines as Operating Income before depreciation of tangible assets and amortization of intangible assets. For additional information regarding the use of segment OIBDA, see Note 9 to the accompanying consolidated financial statements.
Recent Accounting Standards
See Note 2 to the accompanying consolidated financial statements for recently issued accounting standards yet to be adopted.
RESULTS OF OPERATIONS
Three Months Ended March 31, 2015 Compared to Three Months Ended March 31, 2014
The following discussion provides an analysis of the Companys results of operations and should be read in conjunction with the accompanying consolidated statement of operations, as well as the consolidated financial statements and notes thereto and MD&A included in the 2014 Form 10-K.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Consolidated Results
The consolidated financial results for the Company for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Revenue: |
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Residential services |
$ | 4,662 | $ | 4,568 | 2.1% | |||||||
Business services |
781 | 668 | 16.9% | |||||||||
Other |
334 | 346 | (3.5%) | |||||||||
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Total revenue |
5,777 | 5,582 | 3.5% | |||||||||
Costs and expenses: |
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Programming and content |
1,419 | 1,309 | 8.4% | |||||||||
Sales and marketing(a) |
559 | 555 | 0.7% | |||||||||
Technical operations(a) |
399 | 371 | 7.5% | |||||||||
Customer care(a) |
226 | 205 | 10.2% | |||||||||
Other operating(a) |
1,178 | 1,162 | 1.4% | |||||||||
Depreciation |
852 | 775 | 9.9% | |||||||||
Amortization |
34 | 33 | 3.0% | |||||||||
Merger-related and restructuring costs |
26 | 80 | (67.5%) | |||||||||
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Total costs and expenses |
4,693 | 4,490 | 4.5% | |||||||||
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Operating Income |
1,084 | 1,092 | (0.7%) | |||||||||
Interest expense |
(348) | (364) | (4.4%) | |||||||||
Other income, net |
10 | 15 | (33.3%) | |||||||||
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Income before income taxes |
746 | 743 | 0.4% | |||||||||
Income tax provision |
(288) | (264) | 9.1% | |||||||||
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Net income |
458 | 479 | (4.4%) | |||||||||
Less: Net income attributable to noncontrolling interests |
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Net income attributable to TWC shareholders |
$ | 458 | $ | 479 | (4.4%) | |||||||
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NMNot meaningful.
(a) | Amounts include total employee costs, as follows (in millions): |
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Employee costs |
$ | 1,321 | $ | 1,256 | 5.2% | |||||||
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Revenue. The increase in revenue for the three months ended March 31, 2015 was due to increases in revenue at the Residential Services and Business Services segments. Revenue by segment is discussed in greater detail below in Segment Results.
Costs and expenses
Operating costs and expenses. The increase in operating costs and expenses for the three months ended March 31, 2015 was primarily due to increases in programming, employee, maintenance and bad debt expense; partially offset by declines in marketing costs and voice costs. The increase in employee costs reflects the Companys continued investments in sales and marketing, technical operations and customer care initiatives and a $26 million increase in pension expense, partially offset by a $27 million decrease in employee medical costs (as a result of changes in estimates of previously established employee medical accruals and lower claims activity) and lower shared functions personnel costs. Operating costs and expenses by segment are discussed in greater detail below in Segment Results.
Depreciation. Depreciation increased primarily due to the continued investment in customer premise equipment and scalable infrastructure, as well as shorter-lived capitalized software assets.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Merger-related and restructuring costs. For the three months ended March 31, 2015, the Company incurred Comcast merger-related costs of $24 million, including employee retention costs of $14 million and advisory and legal fees of $10 million. For the three months ended March 31, 2014, the Company incurred merger-related costs of $63 million, which consisted of Comcast merger-related costs, including employee retention costs of $29 million and advisory and legal fees of $33 million, as well as $1 million incurred in connection with the acquisition of DukeNet Communications, LLC. Additional merger-related costs were incurred in April 2015.
The Company incurred restructuring costs of $2 million and $17 million for the three months ended March 31, 2015 and 2014, respectively, primarily related to employee terminations and other exit costs. The Company expects to incur additional restructuring costs in 2015.
Operating Income. Operating Income decreased primarily due to higher operating cost and expenses and depreciation, partially offset by growth in revenue and lower merger-related and restructuring costs, as discussed above.
Interest expense. Interest expense decreased primarily due to lower average debt outstanding during the three months ended March 31, 2015 compared to 2014.
Other income, net. Other income, net, detail is shown in the table below (in millions):
Three Months Ended March 31, | ||||||||||
2015 | 2014 | |||||||||
Income from equity-method investments, net |
$ | 10 | $ | 14 | ||||||
Gain on equity award reimbursement obligation to Time Warner Inc. |
| 1 | ||||||||
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Other income, net |
$ | 10 | $ | 15 | ||||||
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Income tax provision. For the three months ended March 31, 2015 and 2014, the Company recorded income tax provisions of $288 million and $264 million, respectively. The effective tax rates were 38.6% and 35.5% for the three months ended March 31, 2015 and 2014, respectively.
The income tax provision and effective tax rate for the three months ended March 31, 2014 include a benefit of $24 million as a result of the passage of the New York State budget during the first quarter of 2014 that, in part, lowers the New York State business tax rate beginning in 2016. Absent the impact of this item, the effective tax rates would have been 38.6% and 38.8% for the three months ended March 31, 2015 and 2014, respectively.
Net income attributable to TWC shareholders and net income per common share attributable to TWC common shareholders. Net income attributable to TWC shareholders and net income per common share attributable to TWC common shareholders were as follows (in millions, except per share data):
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Net income attributable to TWC shareholders |
$ | 458 | $ | 479 | (4.4%) | |||||||
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Net income per common share attributable to TWC common shareholders: |
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Basic |
$ | 1.60 | $ | 1.71 | (6.4%) | |||||||
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Diluted |
$ | 1.59 | $ | 1.70 | (6.5%) | |||||||
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Net income attributable to TWC shareholders decreased primarily due to an increase in income tax provision and a decrease in Operating Income, partially offset by a decrease in interest expense.
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Segment Results
Residential Services. The financial results of the Residential Services segment for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Revenue: |
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Video |
$ | 2,469 | $ | 2,495 | (1.0%) | |||||||
High-speed data |
1,696 | 1,558 | 8.9% | |||||||||
Voice |
473 | 496 | (4.6%) | |||||||||
Other |
24 | 19 | 26.3% | |||||||||
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Total revenue |
4,662 | 4,568 | 2.1% | |||||||||
Operating costs and expenses: |
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Programming |
1,369 | 1,262 | 8.5% | |||||||||
Sales and marketing(a) |
371 | 385 | (3.6%) | |||||||||
Technical operations(a) |
355 | 335 | 6.0% | |||||||||
Customer care(a) |
189 | 172 | 9.9% | |||||||||
Video franchise and other fees(b) |
114 | 115 | (0.9%) | |||||||||
Other(a) |
183 | 167 | 9.6% | |||||||||
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Total operating costs and expenses |
2,581 | 2,436 | 6.0% | |||||||||
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OIBDA |
$ | 2,081 | $ | 2,132 | (2.4%) | |||||||
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(a) | Amounts include total employee costs, as follows (in millions): |
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Employee costs |
$ | 726 | $ | 672 | 8.0% | |||||||
|
|
|
|
(b) | Video franchise and other fees include fees collected on behalf of franchising authorities and the FCC. |
Selected residential subscriber-related statistics as of March 31, 2015 and 2014 were as follows (in thousands):
March 31, | ||||||||||||
2015(a) | 2014 | % Change | ||||||||||
Video(b) |
10,819 | 11,163 | (3.1%) | |||||||||
High-speed data(c) |
11,990 | 11,358 | 5.6% | |||||||||
Voice(d) |
5,604 | 4,913 | 14.1% | |||||||||
Single play(e) |
5,673 | 5,695 | (0.4%) | |||||||||
Double play(f) |
4,389 | 4,772 | (8.0%) | |||||||||
Triple play(g) |
4,654 | 4,065 | 14.5% | |||||||||
|
|
|
|
|||||||||
Customer relationships(h) |
14,716 | 14,532 | 1.3% | |||||||||
|
|
|
|
(a) | The Companys subscriber numbers as of March 31, 2015 reflect adjustments related to the treatment of employee accounts recorded during the second quarter of 2014 that decreased residential high-speed data subscribers by 10,000, residential voice subscribers by 17,000, residential single play subscribers by 19,000, residential double play subscribers by 4,000 and residential customer relationships by 23,000. |
(b) | Video subscriber numbers reflect billable subscribers who purchase at least the basic service video programming tier. The determination of whether a video subscriber is categorized as residential or business is based on the type of subscriber purchasing the service. |
(c) | High-speed data subscriber numbers reflect billable subscribers who purchase any of the high-speed data services offered by TWC. The determination of whether a high-speed data subscriber is categorized as residential or business is generally based upon the type of service provided to that subscriber. |
(d) | Voice subscriber numbers reflect billable subscribers who purchase an IP-based telephony service. The determination of whether a voice subscriber is categorized as residential or business is generally based upon the type of service provided to that subscriber. |
(e) | Single play subscriber numbers reflect customers who subscribe to one of the Companys video, high-speed data and voice services. |
(f) | Double play subscriber numbers reflect customers who subscribe to two of the Companys video, high-speed data and voice services. |
(g) | Triple play subscriber numbers reflect customers who subscribe to all three of the Companys video, high-speed data and voice services. |
(h) | Customer relationships represent the number of subscribers who purchase at least one of the Companys video, high-speed data and voice services. For example, a subscriber who purchases only high-speed data service and no video service will count as one customer relationship, and a subscriber who purchases both video and high-speed data services will also count as only one customer relationship. |
9
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Revenue. Residential Services segment revenue increased due to an increase in high-speed data revenue, partially offset by decreases in video and voice revenue, each of which is discussed further below.
Average monthly revenue per unit for the Residential Services segment for the three months ended March 31, 2015 and 2014 was as follows:
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Video(a) |
$ | 76.26 | $ | 74.51 | 2.3% | |||||||
High-speed data(b) |
47.82 | 46.32 | 3.2% | |||||||||
Voice(c) |
29.00 | 34.04 | (14.8%) | |||||||||
Customer relationship(d) |
106.46 | 105.45 | 1.0% |
(a) | Average monthly residential video revenue per unit represents residential video revenue divided by the corresponding average residential video subscribers for the period. |
(b) | Average monthly residential high-speed data revenue per unit represents residential high-speed data revenue divided by the corresponding average residential high-speed data subscribers for the period. |
(c) | Average monthly residential voice revenue per unit represents residential voice revenue divided by the corresponding average residential voice subscribers for the period. |
(d) | Average monthly residential revenue per residential customer relationship represents residential services revenue divided by the corresponding average residential customer relationships for the period. |
The major components of residential video revenue for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Programming tiers(a) |
$ | 1,587 | $ | 1,624 | (2.3%) | |||||||
Premium networks |
209 | 201 | 4.0% | |||||||||
Transactional video-on-demand |
61 | 58 | 5.2% | |||||||||
Video equipment rental and installation charges |
343 | 332 | 3.3% | |||||||||
DVR service |
155 | 165 | (6.1%) | |||||||||
Franchise and other fees(b) |
114 | 115 | (0.9%) | |||||||||
|
|
|
|
|||||||||
Total |
$ | 2,469 | $ | 2,495 | (1.0%) | |||||||
|
|
|
|
(a) | Programming tier revenue includes subscriber fees for the Companys various tiers or packages of video programming services generally distinguished from one another by the number and type of programming networks they include. |
(b) | Franchise and other fees include fees collected on behalf of franchising authorities and the FCC. |
The decrease in residential video revenue was primarily due to a year-over-year decline in video subscribers, partially offset by an increase in average revenue per subscriber. The increase in average revenue per subscriber was primarily the result of price increases and higher premium network revenue.
Residential high-speed data revenue increased due to an increase in high-speed data subscribers and growth in average revenue per subscriber. The increase in average revenue per subscriber was primarily due to increases in prices and equipment rental charges and a greater percentage of subscribers purchasing higher-priced tiers of service.
The decrease in residential voice revenue was due to a decrease in average revenue per subscriber, partially offset by growth in voice subscribers.
Operating costs and expenses. Operating costs and expenses increased primarily due to higher programming, technical operations, customer care and other operating costs, partially offset by lower sales and marketing costs.
10
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Selected Residential Services average monthly costs per subscriber for the three months ended March 31, 2015 and 2014 were as follows:
Three Months Ended March 31, | ||||||||||||
2015 | 2014 | % Change | ||||||||||
Programming costs per video subscriber |
$ | 42.28 | $ | 37.69 | 12.2% | |||||||
|
|
|
|
|||||||||
Voice costs per voice subscriber |
$ | 3.68 | $ | 4.97 | (26.0%) | |||||||
|
|
|
|
The increase in programming costs (which include intercompany expense from the Other Operations segment for programming costs associated with the Lakers RSNs, SportsNet LA and the Companys local sports, news and lifestyle channels) was primarily due to contractual rate increases and the carriage of new networks (including SportsNet LA, which launched on February 25, 2014), partially offset by a year-over-year decline in video subscribers.
Sales and marketing costs decreased primarily due to lower marketing expense, partially offset by increased sales-related employee costs as a result of higher compensation costs per employee and headcount growth.
Technical operations costs increased primarily due to headcount growth and increased maintenance costs, reflecting the Companys continued investments to improve the customer experience.
Customer care costs increased primarily due to headcount growth, reflecting the Companys continued investments to improve the customer experience.
Other operating costs increased primarily due to higher bad debt expense and small increases in other miscellaneous expenses, partially offset by a decline in voice costs. Voice costs decreased $12 million in the first quarter of 2015, primarily due to a decrease in delivery costs per subscriber as a result of the in-sourcing of voice transport, switching and interconnection services from Sprint Corporation (which was completed during the first quarter of 2014).
OIBDA. OIBDA decreased primarily due to higher operating costs and expenses, partially offset by the increase in revenue, as discussed above.
11
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Business Services. The financial results of the Business Services segment for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Revenue: |
||||||||||
Video |
$ | 94 | $ | 89 | 5.6% | |||||
High-speed data |
376 | 306 | 22.9% | |||||||
Voice |
142 | 118 | 20.3% | |||||||
Wholesale transport |
121 | 101 | 19.8% | |||||||
Other |
48 | 54 | (11.1%) | |||||||
|
|
|
|
|||||||
Total revenue |
781 | 668 | 16.9% | |||||||
Operating costs and expenses: |
||||||||||
Programming |
43 | 36 | 19.4% | |||||||
Sales and marketing(a) |
137 | 119 | 15.1% | |||||||
Technical operations(a) |
30 | 23 | 30.4% | |||||||
Customer care(a) |
37 | 33 | 12.1% | |||||||
Video franchise and other fees(b) |
4 | 5 | (20.0%) | |||||||
Other(a) |
51 | 50 | 2.0% | |||||||
|
|
|
|
|||||||
Total operating costs and expenses |
302 | 266 | 13.5% | |||||||
|
|
|
|
|||||||
OIBDA |
$ | 479 | $ | 402 | 19.2% | |||||
|
|
|
|
(a) | Amounts include total employee costs, as follows (in millions): |
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Employee costs |
$ | 176 | $ | 151 | 16.6% | |||||
|
|
|
|
(b) | Video franchise and other fees include fees collected on behalf of franchising authorities and the FCC. |
Selected business subscriber-related statistics as of March 31, 2015 and 2014 were as follows (in thousands):
March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Video(a) |
206 | 196 | 5.1% | |||||||
High-speed data(b) |
591 | 531 | 11.3% | |||||||
Voice(c) |
334 | 289 | 15.6% | |||||||
Single play(d) |
349 | 328 | 6.4% | |||||||
Double play(e) |
274 | 239 | 14.6% | |||||||
Triple play(f) |
78 | 70 | 11.4% | |||||||
|
|
|
|
|||||||
Customer relationships(g) |
701 | 637 | 10.0% | |||||||
|
|
|
|
(a) | Video subscriber numbers reflect billable subscribers who purchase at least the basic service video programming tier. The determination of whether a video subscriber is categorized as residential or business is based on the type of subscriber purchasing the service. |
(b) | High-speed data subscriber numbers reflect billable subscribers who purchase any of the high-speed data services offered by TWC. The determination of whether a high-speed data subscriber is categorized as residential or business is generally based upon the type of service provided to that subscriber. |
(c) | Voice subscriber numbers reflect billable subscribers who purchase an IP-based telephony service. The determination of whether a voice subscriber is categorized as residential or business is generally based upon the type of service provided to that subscriber. |
(d) | Single play subscriber numbers reflect customers who subscribe to one of the Companys video, high-speed data and voice services. |
(e) | Double play subscriber numbers reflect customers who subscribe to two of the Companys video, high-speed data and voice services. |
(f) | Triple play subscriber numbers reflect customers who subscribe to all three of the Companys video, high-speed data and voice services. |
(g) | Customer relationships represent the number of subscribers who purchase at least one of the Companys video, high-speed data and voice services. For example, a subscriber who purchases only high-speed data service and no video service will count as one customer relationship, and a subscriber who purchases both video and high-speed data services will also count as only one customer relationship. Customers who purchase wholesale transport or cloud services but do not purchase one of the Companys video, high-speed data or voice services are not included in the Companys subscriber results. |
Revenue. Business services revenue increased primarily due to growth in high-speed data and voice subscribers and an increase in cell tower backhaul revenue of $13 million (which included certain early termination fees).
12
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Operating costs and expenses. Operating costs and expenses increased primarily as a result of increased headcount and higher compensation costs per employee.
OIBDA. OIBDA increased primarily due to the increase in revenue, partially offset by higher operating costs and expenses, as discussed above.
Other Operations. The financial results of the Other Operations segment for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Revenue: |
||||||||||
Advertising |
$ | 230 | $ | 247 | (6.9%) | |||||
Other |
168 | 153 | 9.8% | |||||||
|
|
|
|
|||||||
Total revenue |
398 | 400 | (0.5%) | |||||||
Operating costs and expenses(a) |
235 | 227 | 3.5% | |||||||
|
|
|
|
|||||||
OIBDA |
$ | 163 | $ | 173 | (5.8%) | |||||
|
|
|
|
(a) | Amounts include total employee costs, as follows (in millions): |
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Employee costs |
$ | 85 | $ | 83 | 2.4% | |||||
|
|
|
|
Revenue. Advertising revenue decreased primarily due to lower political advertising revenue, as well as overall softness in the television advertising market. Political advertising revenue was $2 million for the three months ended March 31, 2015 compared to $11 million for the three months ended March 31, 2014. The Company expects advertising revenue in 2015 to decrease compared to 2014 due primarily to a cyclical decline in political advertising revenue.
Other revenue increased primarily due to affiliate fees from the Residential Services segment. The Company continues to seek distribution agreements for the carriage of SportsNet LA by major distributors.
Operating costs and expenses. Operating costs and expenses increased primarily as a result of higher content costs associated with the Lakers RSNs.
OIBDA. OIBDA decreased primarily due to an increase in operating costs and expenses, as discussed above.
Shared Functions. Costs and expenses associated with the Companys shared functions, which consist of 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, for the three months ended March 31, 2015 and 2014 were as follows (in millions):
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Operating costs and expenses(a) |
$ | 727 | $ | 727 | | |||||
Merger-related and restructuring costs |
26 | 80 | (67.5%) | |||||||
|
|
|
|
|||||||
Total costs and expenses |
$ | 753 | $ | 807 | (6.7%) | |||||
|
|
|
|
(a) | Amounts include total employee costs, as follows (in millions): |
Three Months Ended March 31, | ||||||||||
2015 | 2014 |
% Change | ||||||||
Employee costs |
$ | 334 | $ | 350 | (4.6%) | |||||
|
|
|
|
13
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Operating costs and expenses. Operating costs and expenses were flat primarily as increased maintenance expense was offset by lower costs as a result of operating efficiencies, including decreased employee-related expense.
Merger-related and restructuring costs. For the three months ended March 31, 2015, the Company incurred Comcast merger-related costs of $24 million, consisting of employee retention costs of $14 million and advisory and legal fees of $10 million. During the three months ended March 31, 2014, the Company incurred merger-related costs of $63 million, which consisted of Comcast merger-related costs, including employee retention costs of $29 million and advisory and legal fees of $33 million, as well as $1 million incurred in connection with the acquisition of DukeNet Communications, LLC. Additional merger-related costs were incurred in April 2015.
The Company incurred restructuring costs of $2 million and $17 million for the three months ended March 31, 2015 and 2014, respectively, primarily related to employee terminations and other exit costs. The Company expects to incur additional restructuring costs in 2015.
FINANCIAL CONDITION AND LIQUIDITY
Management believes that cash generated by or available to TWC should be sufficient to fund its capital and liquidity needs for the next twelve months and for the foreseeable future thereafter, including quarterly dividend payments and maturities of long-term debt. TWCs sources of cash include cash and equivalents on hand, cash provided by operating activities and borrowing capacity under the Companys $3.5 billion senior unsecured five-year revolving credit facility (the Revolving Credit Facility) and the Companys $2.5 billion unsecured commercial paper program (which is supported by unused committed capacity under the Revolving Credit Facility), as well as access to capital markets.
In accordance with the Companys investment policy of diversifying its investments and limiting the amount of its investments in a single entity or fund, the Company may invest its cash and equivalents in a combination of money market and government funds and U.S. Treasury securities, as well as other similar instruments.
TWCs unused committed financial capacity was $3.345 billion as of March 31, 2015, reflecting $547 million of cash and equivalents and $2.798 billion of available borrowing capacity under the Revolving Credit Facility.
Current Financial Condition
As of March 31, 2015, the Company had $23.286 billion of debt, $547 million of cash and equivalents (net debt of $22.739 billion, defined as total debt less cash and equivalents) and $8.140 billion of total TWC shareholders equity. As of December 31, 2014, the Company had $23.718 billion of debt, $707 million of cash and equivalents (net debt of $23.011 billion) and $8.013 billion of total TWC shareholders equity.
The following table shows the significant items contributing to the change in net debt from December 31, 2014 to March 31, 2015 (in millions):
Balance as of December 31, 2014 |
$ | 23,011 | ||
Cash provided by operating activities |
(1,508) | |||
Capital expenditures |
1,134 | |||
Dividend paid |
216 | |||
All other, net |
(114) | |||
|
|
|||
Balance as of March 31, 2015 |
$ | 22,739 | ||
|
|
On March 16, 2015, the Companys Board of Directors declared a quarterly cash dividend of $0.75 per share of TWC common stock, payable in cash on April 22, 2015 to stockholders of record at the close of business on April 1, 2015.
Cash Flows
Cash and equivalents decreased $160 million and increased $1.032 billion for the three months ended March 31, 2015 and 2014, respectively. Components of these changes are discussed below in more detail.
14
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Operating Activities
Details of cash provided by operating activities are as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Operating Income |
$ | 1,084 | $ | 1,092 | ||||
Depreciation |
852 | 775 | ||||||
Amortization |
34 | 33 | ||||||
Noncash equity-based compensation expense |
42 | 50 | ||||||
Cash paid for interest, net(a) |
(392) | (415) | ||||||
Cash refunds of (paid for) income taxes, net(b) |
(3) | 2 | ||||||
All other, net, including working capital changes |
(109) | (140) | ||||||
|
|
|
|
|||||
Cash provided by operating activities |
$ | 1,508 | $ | 1,397 | ||||
|
|
|
|
(a) | Amounts include cash received under interest rate swap contracts of $16 million and $24 million for the three months ended March 31, 2015 and 2014, respectively. |
(b) | Amounts include cash refunds of income taxes of $2 million and $3 million for the three months ended March 31, 2015 and 2014, respectively. |
Cash provided by operating activities increased from $1.397 billion for the three months ended March 31, 2014 to $1.508 billion for the three months ended March 31, 2015. This increase was primarily related to an increase in Operating Income (excluding depreciation and amortization) and decreases in working capital requirements and cash paid for interest, net.
Cash paid for interest, net, decreased primarily as a result of the maturity of TWCs 8.25% senior notes due February 2014 ($750 million in aggregate principal amount).
On December 19, 2014, the Tax Increase Prevention Act of 2014 was enacted, extending bonus depreciation deductions of 50% of the cost of the Companys qualified 2014 capital expenditures. The Company expects cash paid for income taxes, net, to increase in 2015 primarily as a result of the reversal of prior year bonus depreciation benefits, partially offset by benefits relating to the late enactment of 50% bonus depreciation in December of 2014 (including a related overpayment of approximately $120 million, which reduces the Companys 2015 cash paid for income taxes, net).
The Company made no cash contributions to its qualified defined benefit pension plans (the qualified pension plans) and contributed $1 million to its nonqualified defined benefit pension plan (the nonqualified pension plan and, together with the qualified pension plans, the pension plans) during the three months ended March 31, 2015. As of March 31, 2015, the pension plans were estimated to be underfunded by $255 million. The Company may make discretionary cash contributions to the qualified pension plans in 2015. Such contributions will be dependent on a variety of factors, including current and expected interest rates, asset performance, the funded status of the qualified pension plans and managements judgment. For the nonqualified pension plan, the Company will continue to make contributions during the remainder of 2015 to the extent benefits are paid.
Investing Activities
Details of cash used by investing activities are as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Capital expenditures |
$ | (1,134) | $ | (834) | ||||
Acquisition of intangible assets |
(23) | (12) | ||||||
Other investing activities |
3 | 27 | ||||||
|
|
|
|
|||||
Cash used by investing activities |
$ | (1,154) | $ | (819) | ||||
|
|
|
|
Cash used by investing activities increased from $819 million for the three months ended March 31, 2014 to $1.154 billion for the three months ended March 31, 2015, principally due to an increase in capital expenditures, primarily due to the Companys investments to improve network reliability, upgrade older customer premise equipment and expand its network to additional residences, commercial buildings and cell towers.
15
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
TWCs capital expenditures by major category were as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Customer premise equipment(a) |
$ | 467 | $ | 298 | ||||
Scalable infrastructure(b) |
270 | 163 | ||||||
Line extensions(c) |
174 | 146 | ||||||
Upgrades/rebuilds(d) |
38 | 23 | ||||||
Support capital(e) |
185 | 204 | ||||||
|
|
|
|
|||||
Total capital expenditures |
$ | 1,134 | $ | 834 | ||||
|
|
|
|
(a) | Amounts represent costs incurred in the purchase and installation of equipment that resides at a customers home or business for the purpose of receiving/sending video, high-speed data and/or voice signals. Such equipment includes set-top boxes, remote controls, high-speed data modems (including wireless), telephone modems and the costs of installing such new equipment. Customer premise equipment also includes materials and labor costs incurred to install the drop cable that connects a customers dwelling or business to the closest point of the main distribution network. |
(b) | Amounts represent costs incurred in the purchase and installation of equipment that controls signal reception, processing and transmission throughout TWCs distribution network, as well as controls and communicates with the equipment residing at a customers home or business. Also included in scalable infrastructure is certain equipment necessary for content aggregation and distribution (video-on-demand equipment) and equipment necessary to provide certain video, high-speed data and voice service features (voicemail, email, etc.). |
(c) | Amounts represent costs incurred to extend TWCs distribution network into a geographic area previously not served. These costs typically include network design, the purchase and installation of fiber optic and coaxial cable and certain electronic equipment. |
(d) | Amounts primarily represent costs incurred to upgrade or replace certain existing components or an entire geographic area of TWCs distribution network. These costs typically include network design, the purchase and installation of fiber optic and coaxial cable and certain electronic equipment. |
(e) | Amounts represent all other capital purchases required to run day-to-day operations. These costs typically include vehicles, land and buildings, computer hardware/software, office equipment, furniture and fixtures, tools and test equipment. Amounts include capitalized software costs of $102 million and $93 million for the three months ended March 31, 2015 and 2014, respectively. |
The Company expects that 2015 capital expenditures will increase slightly compared to 2014 capital expenditures of approximately $4.1 billion.
Financing Activities
Details of cash provided (used) by financing activities are as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Short-term borrowings, net |
$ | 131 | $ | 1,544 | ||||
Repayments of long-term debt |
(500) | (750) | ||||||
Dividends paid |
(216) | (214) | ||||||
Repurchases of common stock(a) |
| (259) | ||||||
Proceeds from exercise of stock options |
71 | 79 | ||||||
Excess tax benefit from equity-based compensation |
56 | 78 | ||||||
Taxes paid in cash in lieu of shares issued for equity-based compensation |
(56) | (66) | ||||||
Net collateral received on derivative financial instruments |
| 43 | ||||||
Other financing activities |
| (1) | ||||||
|
|
|
|
|||||
Cash provided (used) by financing activities |
$ | (514) | $ | 454 | ||||
|
|
|
|
(a) | In connection with the Companys entry into the Merger Agreement, the Company suspended its common stock repurchase program (the Stock Repurchase Program) on February 13, 2014. As of March 31, 2015, the Company had $2.723 billion remaining under the Stock Repurchase Program authorization. |
Cash used by financing activities was $514 million for the three months ended March 31, 2015 compared to cash provided by financing activities of $454 million for the three months ended March 31, 2014. Cash used by financing activities for the three months ended March 31, 2015 primarily consisted of the repayment of TWCs 3.5% senior notes due February 2015 ($500 million in aggregate principal amount) and the payment of a quarterly cash dividend, partially offset by borrowings under the Companys commercial paper program. Cash provided by financing activities for the three months ended March 31, 2014 primarily consisted of borrowings under the Companys commercial paper program, partially offset by the repayment of TWCs 8.25% senior notes due February 2014 ($750 million in aggregate principal amount), repurchases of TWC common stock and the payment of a quarterly cash dividend.
16
Table of Contents
TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
Outstanding Debt and Available Financial Capacity
Debt as of March 31, 2015 and December 31, 2014 was as follows:
Outstanding Balance as of | ||||||||||||
Maturity | Interest Rate | March 31, 2015 |
December 31, 2014 |
|||||||||
(in millions) | ||||||||||||
TWC notes and debentures(a) |
2017-2042 | 5.904%(b) | $ | 20,504 | $ | 21,065 | ||||||
TWCE debentures(c) |
2023-2033 | 7.905%(b) | 2,059 | 2,061 | ||||||||
Revolving credit facility(d) |
2017 | | | |||||||||
Commercial paper program(d) |
2017 | 0.515%(b) | 638 | 507 | ||||||||
Capital leases |
2016-2042 | 85 | 85 | |||||||||
|
|
|
|
|||||||||
Total debt(e) |
$ | 23,286 | $ | 23,718 | ||||||||
|
|
|
|
(a) | Outstanding balance amounts of the TWC notes and debentures as of March 31, 2015 and December 31, 2014 include £1.266 billion and £1.267 billion, respectively, of senior unsecured notes valued at $1.876 billion and $1.973 billion, respectively, using the exchange rates at each date. |
(b) | Rate represents a weighted-average effective interest rate as of March 31, 2015 and, for the TWC notes and debentures, includes the effects of interest rate swaps and cross-currency swaps. |
(c) | Outstanding balance amounts of the TWCE debentures as of March 31, 2015 and December 31, 2014 include an unamortized fair value adjustment of $59 million and $61 million, respectively, primarily consisting of the fair value adjustment recognized as a result of the 2001 merger of America Online, Inc. (now known as AOL Inc.) and Time Warner Inc. (now known as Historic TW Inc.). |
(d) | As of March 31, 2015, the Company had $2.798 billion of available borrowing capacity under the Revolving Credit Facility (which reflects a reduction of $64 million for outstanding letters of credit backed by the Revolving Credit Facility). |
(e) | Outstanding balance amounts of total debt as of March 31, 2015 and December 31, 2014 include current maturities of long-term debt of $647 million and $1.017 billion, respectively. |
See the 2014 Form 10-K for further details regarding the Companys outstanding debt and other financing arrangements, including certain information about maturities, covenants and rating triggers related to such debt and financing arrangements. As of March 31, 2015, TWC was in compliance with the leverage ratio covenant of the Revolving Credit Facility, with a ratio of consolidated total debt as of March 31, 2015 to consolidated EBITDA for the twelve months ended March 31, 2015 of approximately 2.8 times. In accordance with the Revolving Credit Facility agreement, consolidated total debt as of March 31, 2015 was calculated as (a) total debt per the accompanying consolidated balance sheet less the TWCE unamortized fair value adjustment (discussed above) and the fair value of debt subject to interest rate swaps, less (b) total cash per the accompanying consolidated balance sheet in excess of $25 million. In accordance with the Revolving Credit Facility agreement, consolidated EBITDA for the twelve months ended March 31, 2015 was calculated as Operating Income plus depreciation, amortization and equity-based compensation expense.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, particularly statements anticipating future growth in revenue, Operating Income, cash provided by operating activities and other financial measures. Words such as anticipates, estimates, expects, projects, intends, plans, believes and words and terms of similar substance used in connection with any discussion of future operating or financial performance identify forward-looking statements. These forward-looking statements are included throughout this report and are based on managements current expectations and beliefs about future events. As with any projection or forecast, they are subject to uncertainty and changes in circumstances.
17
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TIME WARNER CABLE INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION(Continued)
The Company operates in a highly competitive, consumer and technology driven and rapidly changing business that is affected by government regulation and economic, strategic, political and social conditions. Various factors could adversely affect the operations, business or financial results of TWC in the future and cause TWCs actual results to differ materially from those contained in the forward-looking statements, including those factors discussed in detail in Item 1A, Risk Factors, in the 2014 Form 10-K, and in TWCs other filings made from time to time with the Securities and Exchange Commission (the SEC) after the date of this report. In addition, important factors that could cause the Companys actual results to differ materially from those in its forward-looking statements include:
| increased competition from video, high-speed data, networking and voice providers, particularly direct broadcast satellite operators, telecommunication carriers, companies that deliver programming over broadband Internet connections, and wireless broadband and phone providers; |
| the Companys ability to deal effectively with the current challenging economic environment or further deterioration in the economy, which may negatively impact customers demand for the Companys services and also result in a reduction in the Companys advertising revenue; |
| the Companys continued ability to exploit new and existing technologies that appeal to residential and business services customers and advertisers; |
| changes in the regulatory and tax environments in which the Company operates, including, among others, regulation of broadband Internet services, net neutrality rules recently adopted by the FCC and federal, state and local taxation; |
| increased difficulty negotiating programming and retransmission agreements on favorable terms, resulting in increased costs to the Company and/or the loss of popular programming; and |
| changes or delays in, or impediments to executing on, the Companys plans, initiatives and strategies. |
Any forward-looking statements made by the Company in this document speak only as of the date on which they are made. The Company is under no obligation to, and expressly disclaims any obligation to, update or alter its forward-looking statements whether as a result of changes in circumstances, new information, subsequent events or otherwise.
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TIME WARNER CABLE INC.
ITEM 4. CONTROLS AND PROCEDURES
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
The Company, under the supervision and with the participation of its management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Companys disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that the Companys disclosure controls and procedures are effective to ensure that information required to be disclosed in reports filed or submitted by the Company under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms and that information required to be disclosed by the Company is accumulated and communicated to the Companys management to allow timely decisions regarding the required disclosure.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal control over financial reporting during the quarter ended March 31, 2015 that have materially affected, or are reasonably likely to materially affect, its internal control over financial reporting.
19
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CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, 2015 |
December 31, 2014 |
|||||||
(in millions) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and equivalents |
$ | 547 | $ | 707 | ||||
Receivables, less allowances of $112 million and $109 million |
811 | 949 | ||||||
Deferred income tax assets |
232 | 269 | ||||||
Other current assets |
416 | 391 | ||||||
|
|
|
|
|||||
Total current assets |
2,006 | 2,316 | ||||||
Investments |
67 | 64 | ||||||
Property, plant and equipment, net |
16,207 | 15,990 | ||||||
Intangible assets subject to amortization, net |
511 | 523 | ||||||
Intangible assets not subject to amortization |
26,012 | 26,012 | ||||||
Goodwill |
3,137 | 3,137 | ||||||
Other assets |
390 | 459 | ||||||
|
|
|
|
|||||
Total assets |
$ | 48,330 | $ | 48,501 | ||||
|
|
|
|
|||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 446 | $ | 567 | ||||
Deferred revenue and subscriber-related liabilities |
207 | 198 | ||||||
Accrued programming and content expense |
971 | 902 | ||||||
Current maturities of long-term debt |
647 | 1,017 | ||||||
Other current liabilities |
1,888 | 1,813 | ||||||
|
|
|
|
|||||
Total current liabilities |
4,159 | 4,497 | ||||||
Long-term debt |
22,639 | 22,701 | ||||||
Deferred income tax liabilities, net |
12,616 | 12,560 | ||||||
Other liabilities |
772 | 726 | ||||||
Commitments and contingencies (Note 10) |
||||||||
TWC shareholders equity: |
||||||||
Common stock, $0.01 par value, 282.4 million and 280.8 million shares issued and |
3 | 3 | ||||||
Additional paid-in capital |
7,284 | 7,172 | ||||||
Retained earnings |
1,189 | 1,162 | ||||||
Accumulated other comprehensive loss, net |
(336) | (324) | ||||||
|
|
|
|
|||||
Total TWC shareholders equity |
8,140 | 8,013 | ||||||
Noncontrolling interests |
4 | 4 | ||||||
|
|
|
|
|||||
Total equity |
8,144 | 8,017 | ||||||
|
|
|
|
|||||
Total liabilities and equity |
$ | 48,330 | $ | 48,501 | ||||
|
|
|
|
See accompanying notes.
20
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CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
(in millions, except per share data) |
||||||||
Revenue |
$ | 5,777 | $ | 5,582 | ||||
Costs and expenses: |
||||||||
Programming and content |
1,419 | 1,309 | ||||||
Sales and marketing |
559 | 555 | ||||||
Technical operations |
399 | 371 | ||||||
Customer care |
226 | 205 | ||||||
Other operating |
1,178 | 1,162 | ||||||
Depreciation |
852 | 775 | ||||||
Amortization |
34 | 33 | ||||||
Merger-related and restructuring costs |
26 | 80 | ||||||
|
|
|
|
|||||
Total costs and expenses |
4,693 | 4,490 | ||||||
|
|
|
|
|||||
Operating Income |
1,084 | 1,092 | ||||||
Interest expense |
(348) | (364) | ||||||
Other income, net |
10 | 15 | ||||||
|
|
|
|
|||||
Income before income taxes |
746 | 743 | ||||||
Income tax provision |
(288) | (264) | ||||||
|
|
|
|
|||||
Net income |
458 | 479 | ||||||
Less: Net income attributable to noncontrolling interests |
| | ||||||
|
|
|
|
|||||
Net income attributable to TWC shareholders |
$ | 458 | $ | 479 | ||||
|
|
|
|
|||||
Net income per common share attributable to TWC common shareholders: |
||||||||
Basic |
$ | 1.60 | $ | 1.71 | ||||
|
|
|
|
|||||
Diluted |
$ | 1.59 | $ | 1.70 | ||||
|
|
|
|
|||||
Weighted-average common shares outstanding: |
||||||||
Basic |
281.5 | 277.8 | ||||||
|
|
|
|
|||||
Diluted |
284.9 | 281.8 | ||||||
|
|
|
|
|||||
Cash dividends declared per share of common stock |
$ | 1.50 | $ | 0.75 | ||||
|
|
|
|
See accompanying notes.
21
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CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
Net income |
$ | 458 | $ | 479 | ||||
Change in accumulated unrealized losses on pension benefit obligation, net of |
6 | (1) | ||||||
Change in accumulated deferred gains (losses) on cash flow hedges, net of |
(18) | (45) | ||||||
|
|
|
|
|||||
Other comprehensive loss |
(12) | (46) | ||||||
|
|
|
|
|||||
Comprehensive income |
446 | 433 | ||||||
Less: Comprehensive income attributable to noncontrolling interests |
| | ||||||
|
|
|
|
|||||
Comprehensive income attributable to TWC shareholders |
$ | 446 | $ | 433 | ||||
|
|
|
|
See accompanying notes.
22
Table of Contents
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
(in millions) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 458 | $ | 479 | ||||
Adjustments for noncash and nonoperating items: |
||||||||
Depreciation |
852 | 775 | ||||||
Amortization |
34 | 33 | ||||||
Income from equity-method investments, net of cash distributions |
(3) | (7) | ||||||
Deferred income taxes |
100 | 40 | ||||||
Equity-based compensation expense |
42 | 50 | ||||||
Excess tax benefit from equity-based compensation |
(56) | (78) | ||||||
Changes in operating assets and liabilities, net of acquisitions and dispositions: |
||||||||
Receivables |
152 | 105 | ||||||
Accounts payable and other liabilities |
54 | 64 | ||||||
Other changes |
(125) | (64) | ||||||
|
|
|
|
|||||
Cash provided by operating activities |
1,508 | 1,397 | ||||||
|
|
|
|
|||||
INVESTING ACTIVITIES |
||||||||
Capital expenditures |
(1,134) | (834) | ||||||
Acquisition of intangible assets |
(23) | (12) | ||||||
Other investing activities |
3 | 27 | ||||||
|
|
|
|
|||||
Cash used by investing activities |
(1,154) | (819) | ||||||
|
|
|
|
|||||
FINANCING ACTIVITIES |
||||||||
Short-term borrowings, net |
131 | 1,544 | ||||||
Repayments of long-term debt |
(500) | (750) | ||||||
Dividends paid |
(216) | (214) | ||||||
Repurchases of common stock |
| (259) | ||||||
Proceeds from exercise of stock options |
71 | 79 | ||||||
Excess tax benefit from equity-based compensation |
56 | 78 | ||||||
Taxes paid in cash in lieu of shares issued for equity-based compensation |
(56) | (66) | ||||||
Net collateral received on derivative financial instruments |
| 43 | ||||||
Other financing activities |
| (1) | ||||||
|
|
|
|
|||||
Cash provided (used) by financing activities |
(514) | 454 | ||||||
|
|
|
|
|||||
Increase (decrease) in cash and equivalents |
(160) | 1,032 | ||||||
Cash and equivalents at beginning of period |
707 | 525 | ||||||
|
|
|
|
|||||
Cash and equivalents at end of period |
$ | 547 | $ | 1,557 | ||||
|
|
|
|
See accompanying notes.
23
Table of Contents
CONSOLIDATED STATEMENT OF EQUITY
(Unaudited)
TWC Shareholders Equity |
Non- controlling Interests |
Total Equity |
||||||||||
(in millions) | ||||||||||||
Balance as of December 31, 2013 |
$ | 6,943 | $ | 4 | $ | 6,947 | ||||||
Net income |
479 | | 479 | |||||||||
Other comprehensive loss |
(46) | | (46) | |||||||||
Cash dividend declared ($0.75 per common share) |
(213) | | (213) | |||||||||
Repurchase and retirement of common stock |
(208) | | (208) | |||||||||
Equity-based compensation expense |
50 | | 50 | |||||||||
Excess tax benefit realized from equity-based compensation |
78 | | 78 | |||||||||
Shares issued upon exercise of stock options |
79 | | 79 | |||||||||
Taxes paid in lieu of shares issued for equity-based compensation |
(66) | | (66) | |||||||||
Other changes |
(2) | | (2) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of March 31, 2014 |
$ | 7,094 | $ | 4 | $ | 7,098 | ||||||
|
|
|
|
|
|
|||||||
Balance as of December 31, 2014 |
$ | 8,013 | $ | 4 | $ | 8,017 | ||||||
Net income |
458 | | 458 | |||||||||
Other comprehensive loss |
(12) | | (12) | |||||||||
Cash dividends declared ($1.50 per common share) |
(431) | | (431) | |||||||||
Equity-based compensation expense |
42 | | 42 | |||||||||
Excess tax benefit realized from equity-based compensation |
56 | | 56 | |||||||||
Shares issued upon exercise of stock options |
71 | | 71 | |||||||||
Taxes paid in lieu of shares issued for equity-based compensation |
(56) | | (56) | |||||||||
Other changes |
(1) | | (1) | |||||||||
|
|
|
|
|
|
|||||||
Balance as of March 31, 2015 |
$ | 8,140 | $ | 4 | $ | 8,144 | ||||||
|
|
|
|
|
|
See accompanying notes.
24
Table of Contents
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. | DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION |
Description of Business
Time Warner Cable Inc. (together with its subsidiaries, TWC or the Company) is among the largest providers of video, high-speed data and voice services in the U.S., with technologically advanced, well-clustered cable systems located mainly in five geographic areas New York State (including New York City), the Carolinas, the Midwest (including Ohio, Kentucky and Wisconsin), Southern California (including Los Angeles) and Texas. TWCs mission is to connect its customers to the worldsimply, reliably and with superior service. TWC offers video, high-speed data and voice services to residential and business services customers. TWCs residential services also include security and home management services, and TWCs business services also include networking and transport services (including cell tower backhaul services) and enterprise-class, cloud-enabled hosting, managed applications and services. TWC also sells video and online advertising inventory to a variety of local, regional and national customers.
On February 12, 2014, the Company entered into an Agreement and Plan of Merger (the Merger Agreement) with Comcast Corporation (Comcast) whereby the Company agreed to merge with and into a 100% owned subsidiary of Comcast (the Comcast merger). On April 24, 2015, Comcast and the Company entered into a Termination Agreement wherein the parties agreed to terminate the Merger Agreement.
On April 25, 2014, Comcast entered into a binding agreement with Charter Communications, Inc. (Charter), which contemplated three transactions (the divestiture transactions): (1) a contribution, spin-off and merger transaction, (2) an asset exchange and (3) a sale of assets. The completion of the divestiture transactions would have resulted in the combined company divesting a net total of approximately 3.7 million video subscribers, a portion of which were TWC subscribers (primarily in the Midwest). On April 24, 2015, Comcast delivered a notice of termination of such agreement to Charter.
On March 31, 2015, Charter and Advance/Newhouse Partnership (A/N) announced that they and certain of their affiliates had reached a definitive agreement pursuant to which Charter would acquire Bright House Networks, LLC (Bright House Networks), subject to closing of the divestiture transactions and to TWCs right of first offer with respect to Bright House Networks. 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.
Basis of Presentation
Basis of Consolidation
The consolidated financial statements include all of the assets, liabilities, revenue, expenses and cash flows of TWC and all entities in which TWC has a controlling voting interest. The consolidated financial statements include the results of TWE-A/N only for the TWE-A/N cable systems that are controlled by TWC and for which TWC holds an economic interest. Intercompany accounts and transactions between consolidated companies have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and footnotes thereto. Actual results could differ from those estimates. Significant estimates inherent in the preparation of the consolidated financial statements include accounting for allowances for doubtful accounts, depreciation and amortization, business combinations, derivative financial instruments, pension benefits, equity-based compensation, income taxes, loss contingencies, certain programming arrangements and asset impairments. Allocation methodologies used to prepare the consolidated financial statements are based on estimates and have been described in the notes, where appropriate.
25
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Reclassifications
Certain reclassifications have been made to the prior period financial information to conform to the current year presentation.
Interim Financial Statements
The consolidated financial statements are unaudited; however, in the opinion of management, they contain all the adjustments (consisting of those of a normal recurring nature) considered necessary to present fairly the financial position, results of operations and cash flows for the periods presented in conformity with GAAP applicable to interim periods. The consolidated financial statements should be read in conjunction with the audited consolidated financial statements of TWC included in the Companys Annual Report on Form 10-K for the year ended December 31, 2014.
2. | RECENT ACCOUNTING STANDARDS |
Accounting Standards Not Yet Adopted
Revenue from Contracts with Customers
In May 2014, the Financial Accounting Standards Board the (FASB) issued authoritative guidance that outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most recent current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also specifies the accounting for certain incremental costs of obtaining a contract and costs to fulfill a contract with a customer. Entities have the option of applying either a full retrospective approach to all periods presented or a modified approach that reflects differences prior to the date of adoption as an adjustment to equity. In April 2015, the FASB deferred the effective date of this guidance by one year. As such, this guidance will be effective for TWC on January 1, 2018 and the Company is currently assessing the impact of this guidance on its consolidated financial statements.
Presentation of Debt Issuance Costs
In April 2015, the FASB issued authoritative guidance for the purpose of simplifying the presentation of debt issuance costs. Under this guidance, debt issuance costs related to a recognized debt liability are required to be presented in the balance sheet as a direct reduction from the carrying amount of such debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this guidance. Entities will be required to apply a full retrospective approach to all periods presented. This guidance will be effective for TWC on January 1, 2016 and, upon adoption, debt issuance costs capitalized in other current assets and other assets in the consolidated balance sheet will be reclassified and presented as a reduction to current and noncurrent long-term debt. As of March, 31, 2015, debt issuance costs, net of accumulated amortization, recognized in the consolidated balance sheet totaled $100 million, of which $10 million is recorded in other current assets.
Customers Accounting for Fees Paid in a Cloud Computing Arrangement
In April 2015, the FASB issued authoritative guidance for the purpose of clarifying the accounting for cloud computing arrangements by providing criteria for determining whether a cloud computing arrangement includes a software license. Under this guidance, if it is determined that a cloud computing arrangement includes a software license, the customer should account for the software license element of the arrangement consistent with the acquisition of other software licenses; however, if it is determined that a cloud computing arrangement does not include a software license, the customer should account for the arrangement as a service contract. Entities have the option of applying either a full retrospective approach to all periods presented or a prospective approach to all arrangements entered into or materially modified after the effective date. This guidance will be effective for TWC on January 1, 2016 and is not expected to have a material impact on the Companys consolidated financial statements.
26
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
3. | EARNINGS PER SHARE |
Basic net income per common share attributable to TWC common shareholders is determined using the two-class method and is computed by dividing net income attributable to TWC common shareholders by the weighted average of common shares outstanding during the period. The two-class method is an earnings allocation formula that determines income per share for each class of common stock and participating security according to dividends declared and participation rights in undistributed earnings. Diluted net income per common share attributable to TWC common shareholders reflects the more dilutive earnings per share amount calculated using the treasury stock method or the two-class method.
Set forth below is a reconciliation of net income attributable to TWC common shareholders per basic and diluted common share (in millions, except per share data):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Net income attributable to TWC common shareholders |
$ | 450 | $ | 475 | ||||
Net income allocated to participating securities(a) |
8 | 4 | ||||||
|
|
|
|
|||||
Net income attributable to TWC shareholders |
$ | 458 | $ | 479 | ||||
|
|
|
|
|||||
Weighted-average basic common shares outstanding |
281.5 | 277.8 | ||||||
Dilutive effect of nonparticipating equity awards |
1.1 | 2.1 | ||||||
Dilutive effect of participating equity awards(a) |
2.3 | 1.9 | ||||||
|
|
|
|
|||||
Weighted-average diluted common shares outstanding |
284.9 | 281.8 | ||||||
|
|
|
|
|||||
Net income per common share attributable to TWC common shareholders: |
||||||||
Basic |
$ | 1.60 | $ | 1.71 | ||||
|
|
|
|
|||||
Diluted |
$ | 1.59 | $ | 1.70 | ||||
|
|
|
|
(a) | Restricted stock units granted to employees and non-employee directors are considered participating securities with respect to regular quarterly cash dividends. |
4. | DERIVATIVE FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
Assets and Liabilities Measured at Fair Value on a Recurring Basis
The fair values of assets and liabilities associated with derivative financial instruments recorded in the consolidated balance sheet as of March 31, 2015 and December 31, 2014 consisted of the following (in millions):
Assets | Liabilities | |||||||||||||||
March 31, 2015 |
December 31, 2014 |
March 31, 2015 |
December 31, 2014 |
|||||||||||||
Interest rate swaps(a)(b) |
$ | 112 | $ | 93 | $ | 5 | $ | 19 | ||||||||
Cross-currency swaps(a)(c) |
117 | 197 | 46 | | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total |
$ | 229 | $ | 290 | $ | 51 | $ | 19 | ||||||||
|
|
|
|
|
|
|
|
(a) | Interest rate swap and cross-currency swap contracts with multiple counterparties are subject to contractual terms that provide for the net settlement of all such contracts with each counterparty, including cash collateral received or paid, through a single payment in the event of default on or termination of any one contract by either party. The fair values of the assets and liabilities associated with interest rate swaps and cross-currency swaps are presented on a gross basis in the consolidated balance sheet and are classified as current or noncurrent based on the maturity date of the respective contract. |
(b) | The fair value of assets associated with interest rate swaps as of March 31, 2015 is recorded in other assets in the consolidated balance sheet. Of the total fair value of assets associated with interest rate swaps as of December 31, 2014, $1 million is recorded in other current assets with the remainder recorded in other assets in the consolidated balance sheet. The fair values of liabilities associated with interest rate swaps as of March 31, 2015 and December 31, 2014 are recorded in other liabilities in the consolidated balance sheet. |
(c) | The fair values of assets and liabilities associated with cross-currency swaps are recorded in other assets and other liabilities, respectively, in the consolidated balance sheet. |
27
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Fair Value Hedges
The Company uses interest rate swaps to manage interest rate risk by effectively converting fixed-rate debt into variable-rate debt. Under such contracts, the Company is entitled to receive semi-annual interest payments at fixed rates and is required to make semi-annual interest payments at variable rates, without exchange of the underlying principal amount. Such contracts are designated as fair value hedges. The Company recognized no gain or loss related to its interest rate swaps because the changes in the fair values of such instruments were completely offset by the changes in the fair values of the hedged fixed-rate debt. The fair value of interest rate swaps was determined using a discounted cash flow (DCF) analysis based on the terms of the contract and expected forward interest rates, and incorporates the credit risk of the Company and each counterparty (a Level 2 fair value measurement). The following table summarizes the terms of existing fixed to variable interest rate swaps as of March 31, 2015 and December 31, 2014:
March 31, | December 31, | |||||||
2015 | 2014 | |||||||
Maturities |
2017-2019 | 2015-2019 | ||||||
Notional amount (in millions) |
$ | 5,600 | $ | 6,100 | ||||
Weighted-average pay rate (variable based on LIBOR plus variable margins) |
5.13% | 4.78% | ||||||
Weighted-average receive rate (fixed) |
6.86% | 6.58% |
The notional amounts of interest rate instruments, as presented in the above table, are used to measure interest to be paid or received and do not represent the amount of exposure to credit loss.
Cash Flow Hedges
The Company uses cross-currency swaps to manage foreign exchange risk related to foreign currency denominated debt by effectively converting foreign currency denominated debt, including annual interest payments and the payment of principal at maturity, to U.S. dollar denominated debt. Such contracts are designated as cash flow hedges. The Company has entered into cross-currency swaps to effectively convert its £1.275 billion aggregate principal amount of fixed-rate British pound sterling denominated debt, including annual interest payments and the payment of principal at maturity, to fixed-rate U.S. dollar denominated debt. The cross-currency swaps have maturities of June 2031 and July 2042. The fair value of cross-currency swaps was determined using a DCF analysis based on expected forward interest and exchange rates, and incorporates the credit risk of the Company and each counterparty (a Level 2 fair value measurement). The following table summarizes the deferred gain (loss) activity related to cash flow hedges recognized in accumulated other comprehensive loss, net, and reclassified into other income, net, for the three months ended March 31, 2015 and 2014 (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Deferred losses recognized |
$ | (126) | $ | (62) | ||||
Deferred (gains) losses reclassified into earnings(a) |
97 | (12) | ||||||
|
|
|
|
|||||
Total net deferred losses recognized |
(29) | (74) | ||||||
Income tax benefit |
11 | 29 | ||||||
|
|
|
|
|||||
Total net deferred losses recognized, net of tax |
$ | (18) | $ | (45) | ||||
|
|
|
|
(a) | Deferred gains (losses) on cross-currency swaps were reclassified from accumulated other comprehensive loss, net, to other income, net, which offsets the re-measurement gains (losses) recognized in other income, net, on the British pound sterling denominated debt. |
Any ineffectiveness related to cash flow hedges has been and is expected to be immaterial.
Assets Measured at Fair Value on a Nonrecurring Basis
The Companys assets measured at fair value on a nonrecurring basis include equity-method investments, long-lived assets, indefinite-lived intangible assets and goodwill. The Company reviews the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually as of July 1 for indefinite-lived intangible assets and goodwill. Any resulting asset impairment would require that the asset be reduced to its fair value.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Fair Value of Other Financial Instruments
The Companys other financial instruments not measured at fair value on a recurring basis include (a) cash and equivalents, receivables, accounts payable, accrued liabilities and borrowings under the Companys commercial paper program, which are reflected at cost in the consolidated balance sheet, and (b) TWC senior notes and debentures and TWCE senior debentures (collectively, the senior notes and debentures) not subject to fair value hedge accounting, which are reflected at amortized cost in the consolidated balance sheet. With the exception of the senior notes and debentures, cost approximates fair value for these instruments due to their short-term nature. The carrying value and related estimated fair value of the senior notes and debentures was $22.563 billion and $27.233 billion, respectively, as of March 31, 2015 and $23.126 billion and $27.842 billion, respectively, as of December 31, 2014. Estimated fair values for the senior notes and debentures are determined by reference to the market value of the instrument as quoted on a national securities exchange or in an over-the-counter market (a Level 1 fair value measurement).
5. | TWC SHAREHOLDERS EQUITY |
Changes in Common Stock
Changes in common stock from January 1 through March 31 are presented below (in millions):
2015 | 2014 | |||||||
Balance at beginning of period |
280.8 | 277.9 | ||||||
Shares issued under the equity-based compensation plan |
1.6 | 2.2 | ||||||
Shares repurchased and retired |
| (1.5) | ||||||
|
|
|
|
|||||
Balance at end of period |
282.4 | 278.6 | ||||||
|
|
|
|
Common Stock Repurchase Program
In connection with the Companys entry into the Merger Agreement, the Company suspended its $4.0 billion common stock repurchase program (the Stock Repurchase Program) on February 13, 2014. As of March 31, 2015, the Company had $2.723 billion remaining under the Stock Repurchase Program authorization.
Accumulated Other Comprehensive Income (Loss), Net
Changes in accumulated other comprehensive income (loss), net, included in TWC shareholders equity from January 1 through March 31 are presented below (in millions):
2015 | 2014 | |||||||
Balance at beginning of period |
$ | (324) | $ | 44 | ||||
Other comprehensive loss before reclassifications, net of tax |
(78) | (39) | ||||||
Amounts reclassified into earnings, net of tax |
66 | (7) | ||||||
|
|
|
|
|||||
Other comprehensive loss, net of tax |
(12) | (46) | ||||||
|
|
|
|
|||||
Balance at end of period |
$ | (336) | $ | (2) | ||||
|
|
|
|
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
The following table summarizes the changes in the components of accumulated other comprehensive income (loss), net, included in TWC shareholders equity from January 1 through March 31 (in millions):
2015 | 2014 | |||||||
Unrealized losses on pension benefit obligation: |
||||||||
Balance at beginning of period |
$ | (473) | $ | (104) | ||||
Amounts reclassified into earnings, net of tax: |
||||||||
Amortization of actuarial (gain) loss(a) |
10 | (1) | ||||||
Income tax benefit |
(4) | | ||||||
|
|
|
|
|||||
Amortization of actuarial (gain) loss, net of tax |
6 | (1) | ||||||
Other comprehensive income (loss), net of tax |
6 | (1) | ||||||
|
|
|
|
|||||
Balance at end of period |
$ | (467) | $ | (105) | ||||
|
|
|
|
|||||
Deferred gains (losses) on cash flow hedges: |
||||||||
Balance at beginning of period |
$ | 150 | $ | 149 | ||||
Other comprehensive loss before reclassifications, net of tax |
(78) | (39) | ||||||
Amounts reclassified into earnings, net of tax: |
||||||||
Effective portion of (gain) loss on cash flow hedges(b) |
97 | (12) | ||||||
Income tax provision (benefit) |
(37) | 6 | ||||||
|
|
|
|
|||||
Effective portion of (gain) loss on cash flow hedges, net of tax |
60 | (6) | ||||||
Other comprehensive loss, net of tax |
(18) | (45) | ||||||
|
|
|
|
|||||
Balance at end of period |
$ | 132 | $ | 104 | ||||
|
|
|
|
|||||
Other changes: |
||||||||
Balance at beginning and end of period |
$ | (1) | $ | (1) | ||||
|
|
|
|
(a) | Amounts are included in the computation of net periodic benefit costs as discussed further in Note 7. |
(b) | Amounts are recorded in other income, net, in the consolidated statement of operations as discussed further in Note 4. |
6. | EQUITY-BASED COMPENSATION |
TWC is authorized under the Companys stock incentive plan (the 2011 Plan) to grant restricted stock units (RSUs) and options to purchase shares of TWC common stock to its employees and non-employee directors. As of March 31, 2015, the 2011 Plan provides for the issuance of up to 20.0 million shares of TWC common stock, of which 8.8 million shares were available for grant.
Equity-based compensation expense recognized for the three months ended March 31, 2015 and 2014 was as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Restricted stock units(a) |
$ | 38 | $ | 43 | ||||
Stock options |
4 | 7 | ||||||
|
|
|
|
|||||
Total equity-based compensation expense(a) |
$ | 42 | $ | 50 | ||||
|
|
|
|
(a) | Of the total equity-based compensation expense recorded in 2015 and 2014, $11 million and $9 million, respectively, is recognized in merger-related and restructuring costs in the consolidated statement of operations. |
Restricted Stock Units
For the three months ended March 31, 2015, TWC granted 18,000 RSUs at a weighted-average grant date fair value of $146.80 per RSU, which included no RSUs subject to performance-based vesting conditions (PBUs). For the three months ended March 31, 2014, TWC granted 3.575 million RSUs at a weighted-average grant date fair value of $135.31 per RSU, which included 143,000 PBUs at a weighted-average grant date fair value of $135.31 per PBU. Total unrecognized
30
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
compensation cost related to unvested RSUs as of March 31, 2015, without taking into account expected forfeitures, was $422 million, which the Company expects to recognize over a weighted-average period of 3.53 years, without taking into account acceleration of vesting.
In connection with the Companys entry into the Merger Agreement, the Company advanced the timing of its annual grants that would have been made in 2015 and 2016 into 2014. As a result, eligible employees were granted additional RSUs having a value equal to (and with vesting terms consistent with) those that these employees otherwise would have received in each of 2015 and 2016 (the retention grants), but without performance-based vesting conditions. Specifically, the retention grant corresponding to the 2015 annual grant will vest 50% in February of 2018 and 50% in February of 2019; the retention grant corresponding to the 2016 annual grant will vest 50% in February of 2019 and 50% in February of 2020, in each case subject to continued employment. If the grantees employment were terminated prior to the date on which either retention grant would have normally been made (i.e., February 2015 or 2016, as appropriate), such retention grant would be forfeited, absent a change in control of the Company prior to such termination of employment. Employees who received retention grants were generally not eligible for additional equity awards in 2015 and will generally not be eligible for additional equity awards in 2016 absent a change of responsibilities or other circumstances. Consequently, whether or not the Comcast merger was consummated, both the employees and the Company would generally be in the same position they would have been in had the additional RSUs been granted in 2015 and 2016, rather than in 2014.
With the exception of the retention grants discussed above, RSUs, including PBUs, generally vest 50% on each of the third and fourth anniversary of the grant date, subject to continued employment and, in the case of PBUs, subject to the satisfaction and certification of the applicable performance conditions. RSUs generally provide for accelerated vesting upon the termination of the grantees employment after reaching a specified age and years of service or upon a termination of the grantees employment within 24 months following a change in control of the Company and, in the case of PBUs, subject to the satisfaction and certification of the applicable performance conditions. PBUs are subject to forfeiture if the applicable performance condition is not satisfied. RSUs awarded to non-employee directors are not subject to vesting or forfeiture restrictions and the shares underlying the RSUs will generally be issued in connection with a directors termination of service as a director. Pursuant to the directors compensation program, certain directors with more than three years of service on the Board of Directors have elected an in-service vesting period for their RSU awards. Holders of RSUs are generally entitled to receive cash dividend equivalents or retained distributions related to regular cash dividends or other distributions, respectively, paid by TWC. In the case of PBUs, the receipt of the dividend equivalents is subject to the satisfaction and certification of the applicable performance conditions. Retained distributions are subject to the vesting requirements of the underlying RSUs. Upon the vesting of a RSU, shares of TWC common stock may be issued from authorized but unissued shares or from treasury stock, if any.
Stock Options
For the three months ended March 31, 2015 and 2014, TWC granted no stock options. Total unrecognized compensation cost related to unvested stock options as of March 31, 2015, without taking into account expected forfeitures, was $19 million, which the Company expects to recognize over a weighted-average period of 1.60 years, without taking into account acceleration of vesting.
Stock options, including stock options subject to performance-based vesting conditions (PBOs), have exercise prices equal to the fair market value of TWC common stock at the date of grant. Generally, stock options vest ratably over a four-year vesting period and expire ten years from the date of grant, subject to continued employment and, in the case of PBOs, subject to the satisfaction and certification of the applicable performance condition. Certain stock option awards provide for accelerated vesting upon the termination of the grantees employment after reaching a specified age and years of service or upon a termination of the grantees employment within 24 months following a change in control of the Company and, in the case of PBOs, subject to the satisfaction and certification of the applicable performance conditions. PBOs are subject to forfeiture if the applicable performance condition is not satisfied. Upon the exercise of a stock option, shares of TWC common stock may be issued from authorized but unissued shares or from treasury stock, if any.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
7. | PENSION COSTS |
TWC sponsors the Time Warner Cable Pension Plan (the TWC Pension Plan) and the Time Warner Cable Union Pension Plan (the Union Pension Plan and, together with the TWC Pension Plan, the qualified pension plans), both qualified defined benefit pension plans, that together provide pension benefits to a majority of the Companys employees. TWC also provides a nonqualified defined benefit pension plan for certain employees (the nonqualified pension plan and, together with the qualified pension plans, the pension plans). Pension benefits are based on formulas that reflect the employees years of service and compensation during their employment period. TWC uses a December 31 measurement date for its pension plans. The components of net periodic benefit costs for the three months ended March 31, 2015 and 2014 is as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Service cost |
$ | 57 | $ | 43 | ||||
Interest cost |
36 | 36 | ||||||
Expected return on plan assets |
(57) | (58) | ||||||
Amounts amortized |
10 | (1) | ||||||
|
|
|
|
|||||
Net periodic benefit costs |
$ | 46 | $ | 20 | ||||
|
|
|
|
The Company made no cash contributions to the qualified pension plans during the three months ended March 31, 2015; however, the Company may make discretionary cash contributions to the qualified pension plans in 2015. Such contributions will be dependent on a variety of factors, including current and expected interest rates, asset performance, the funded status of the qualified pension plans and managements judgment. For the nonqualified pension plan, the Company will continue to make contributions during the remainder of 2015 to the extent benefits are paid.
8. | MERGER-RELATED AND RESTRUCTURING COSTS |
Merger-related and restructuring costs for the three months ended March 31, 2015 and 2014 consisted of the following (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Merger-related costs |
$ | 24 | $ | 63 | ||||
Restructuring costs |
2 | 17 | ||||||
|
|
|
|
|||||
Total merger-related and restructuring costs |
$ | 26 | $ | 80 | ||||
|
|
|
|
32
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Merger-related Costs
For the three months ended March 31, 2015, the Company incurred Comcast merger-related costs of $24 million, including employee retention costs of $14 million and advisory and legal fees of $10 million. For the three months ended March 31, 2014, the Company incurred merger-related costs of $63 million, which consisted of Comcast merger-related costs, including employee retention costs of $29 million and advisory and legal fees of $33 million, as well as $1 million incurred in connection with the acquisition of DukeNet Communications, LLC. Additional merger-related costs were incurred in April 2015. Changes in accruals for merger-related costs are presented below (in millions):
Employee Costs |
Other Costs |
Total | ||||||||||
Remaining liability as of December 31, 2013 |
$ | 3 | $ | 3 | $ | 6 | ||||||
Costs incurred |
68 | 75 | 143 | |||||||||
Adjustments |
(1) | | (1) | |||||||||
Cash paid(a) |
(5) | (61) | (66) | |||||||||
|
|
|
|
|
|
|||||||
Remaining liability as of December 31, 2014 |
65 | 17 | 82 | |||||||||
Costs incurred |
3 | 10 | 13 | |||||||||
Cash paid |
(2) | (19) | (21) | |||||||||
|
|
|
|
|
|
|||||||
Remaining liability as of March 31, 2015(b) |
$ | 66 | $ | 8 | $ | 74 | ||||||
|
|
|
|
|
|
(a) | Of the total cash paid in 2014, $24 million was paid during the three months ended March 31, 2014. |
(b) | The remaining $74 million liability as of March 31, 2015 is classified as a current liability in the consolidated balance sheet. |
In addition to the cash settled liabilities shown in the table above, the Company also issued RSUs in connection with the retention grants, as discussed in Note 6, which resulted in additional merger-related costs of $56 million for the year ended December 31, 2014 ($9 million for the three months ended March 31, 2014) and $11 million for the three months ended March 31, 2015.
Restructuring Costs
For the three months ended March 31, 2015 and 2014, the Company incurred restructuring costs of $2 million and $17 million, respectively, primarily related to employee terminations and other exit costs. The Company expects to incur additional restructuring costs in 2015. Changes in restructuring reserves are presented below (in millions):
Employee Termination Costs |
Other Exit Costs |
Total | ||||||||||
Remaining liability as of December 31, 2013 |
$ | 39 | $ | 4 | $ | 43 | ||||||
Costs incurred |
14 | 16 | 30 | |||||||||
Adjustments |
(3) | | (3) | |||||||||
Cash paid(a) |
(42) | (20) | (62) | |||||||||
|
|
|
|
|
|
|||||||
Remaining liability as of December 31, 2014 |
8 | | 8 | |||||||||
Costs incurred |
2 | | 2 | |||||||||
Cash paid |
(5) | | (5) | |||||||||
|
|
|
|
|
|
|||||||
Remaining liability as of March 31, 2015(b) |
$ | 5 | $ | | $ | 5 | ||||||
|
|
|
|
|
|
(a) | Of the total cash paid in 2014, $34 million was paid during the three months ended March 31, 2014. |
(b) | Of the remaining liability as of March 31, 2015, $4 million is classified as a current liability, with the remaining amount classified as a noncurrent liability in the consolidated balance sheet. Amounts are expected to be paid through March 2018. |
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
9. | SEGMENT INFORMATION |
The Company classifies its operations into the following three reportable segments, which have been determined based on how management evaluates and manages the business:
| Residential Services, which principally consists of video, high-speed data and voice services provided to residential customers as well as other residential services, including security and home management services. |
| Business Services, which principally consists of data, video and voice services provided to business customers as well as other business services, including enterprise-class, cloud-enabled hosting, managed applications and services. |
| Other Operations, which principally consists of (i) Time Warner Cable Media (TWC Media), the advertising sales arm of TWC, (ii) TWC-owned and/or operated regional sports networks (RSNs) and local sports, news and lifestyle channels (e.g., Time Warner Cable News NY1) and (iii) other operating revenue and costs, including those derived from A/N and home shopping network-related services. The business units reflected in the Other Operations segment individually do not meet the thresholds to be reported as separate reportable segments. |
In addition to the above reportable segments, the Company has shared functions (referred to as Shared Functions) that include activities not attributable to a specific reportable segment. Shared Functions consists of operating costs and expenses 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 attributable to a reportable segment. As such, the reportable segment results reflect how management views such segments in assessing financial performance and allocating resources and are not necessarily indicative of the results of operations that each segment would have achieved had they operated as stand-alone entities during the periods presented.
In evaluating the profitability of the Companys segments, the components of net income (loss) below OIBDA, as defined below, are not separately evaluated by management at the segment level. Due to the nature of the Companys operations, a majority of its assets, including its distribution systems, are utilized across the Companys operations and are not segregated by segment. In addition, segment assets are not reported to, or used by, management to allocate resources or assess the performance of the Companys segments. Accordingly, the Company has not disclosed asset information by segment.
Segment information for the three months ended March 31, 2015 and 2014 is as follows (in millions):
Three Months Ended March 31, 2015 | ||||||||||||||||||||||||
Residential Services Segment |
Business Services Segment |
Other Operations Segment |
Shared Functions |
Intersegment Eliminations |
Total Consolidated |
|||||||||||||||||||
Revenue(a) |
$ | 4,662 | $ | 781 | $ | 398 | $ | | $ | (64) | $ | 5,777 | ||||||||||||
Operating costs and |
(2,581) | (302) | (235) | (727) | 64 | (3,781) | ||||||||||||||||||
Merger-related and |
| | | (26) | | (26) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
OIBDA |
$ | 2,081 | $ | 479 | $ | 163 | $ | (753) | $ | | 1,970 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Depreciation |
(852) | |||||||||||||||||||||||
Amortization |
(34) | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Operating Income |
$ | 1,084 | ||||||||||||||||||||||
|
|
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Three Months Ended March 31, 2014 | ||||||||||||||||||||||||
Residential Services Segment |
Business Services Segment |
Other Operations Segment |
Shared Functions |
Intersegment Eliminations |
Total Consolidated |
|||||||||||||||||||
Revenue(a) |
$ | 4,568 | $ | 668 | $ | 400 | $ | | $ | (54) | $ | 5,582 | ||||||||||||
Operating costs and |
(2,436) | (266) | (227) | (727) | 54 | (3,602) | ||||||||||||||||||
Merger-related and |
| | | (80) | | (80) | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
OIBDA |
$ | 2,132 | $ | 402 | $ | 173 | $ | (807) | $ | | 1,900 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Depreciation |
(775) | |||||||||||||||||||||||
Amortization |
(33) | |||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Operating Income |
$ | 1,092 | ||||||||||||||||||||||
|
|
(a) | Revenue derived from outside the U.S. was insignificant in all periods presented. No single customer accounted for a significant amount of revenue in any period presented. |
Intersegment Eliminations relates to the programming provided to the Residential Services and Business Services segments by the RSNs 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.
Intersegment revenue for the three months ended March 31, 2015 and 2014 consisted of the following (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Residential Services |
$ | | $ | | ||||
Business Services |
| | ||||||
Other Operations |
64 | 54 | ||||||
|
|
|
|
|||||
Total intersegment revenue |
$ | 64 | $ | 54 | ||||
|
|
|
|
35
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Revenue for the three months ended March 31, 2015 and 2014 was derived from the following sources (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Residential Services revenue: |
||||||||
Video |
$ | 2,469 | $ | 2,495 | ||||
High-speed data |
1,696 | 1,558 | ||||||
Voice |
473 | 496 | ||||||
Other |
24 | 19 | ||||||
|
|
|
|
|||||
Total Residential Services revenue |
4,662 | 4,568 | ||||||
Business Services revenue: |
||||||||
Video |
94 | 89 | ||||||
High-speed data |
376 | 306 | ||||||
Voice |
142 | 118 | ||||||
Wholesale transport |
121 | 101 | ||||||
Other |
48 | 54 | ||||||
|
|
|
|
|||||
Total Business Services revenue |
781 | 668 | ||||||
Other Operations revenue: |
||||||||
Advertising |
230 | 247 | ||||||
Other |
168 | 153 | ||||||
|
|
|
|
|||||
Total Other Operations revenue |
398 | 400 | ||||||
Intersegment eliminations |
(64) | (54) | ||||||
|
|
|
|
|||||
Total revenue |
$ | 5,777 | $ | 5,582 | ||||
|
|
|
|
Use of OIBDA
Management uses Operating Income before Depreciation and Amortization (OIBDA), among other measures, in evaluating the segments performance because it eliminates the effects of (i) considerable amounts of noncash depreciation and amortization and (ii) items not within the control of the Companys operations managers (such as income tax provision, other income (expense), net, and interest expense). Management also uses this measure to evaluate the Companys consolidated operating performance and to allocate resources and capital to the segments. Performance measures derived from OIBDA are also used in the Companys annual incentive compensation programs. In addition, this measure is commonly used by analysts, investors and others in evaluating the Companys performance.
This measure has inherent limitations. For example, OIBDA does not reflect capital expenditures or the periodic costs of certain capitalized assets used in generating revenue. To compensate for such limitations, management evaluates the Companys consolidated performance through, among other measures, various cash flow measures, which reflect capital expenditure decisions, and net income attributable to TWC shareholders, which reflects the periodic costs of capitalized assets. OIBDA also fails to reflect the significant costs borne by the Company for income taxes and debt servicing costs, the results of the Companys equity investments and other non-operational income or expense. Management compensates for these limitations by using other analytics such as a review of net income attributable to TWC shareholders.
This non-GAAP measure should be considered in addition to, not as a substitute for, the Companys Operating Income and net income attributable to TWC shareholders, as well as other measures of financial performance reported in accordance with GAAP, and may not be comparable to similarly titled measures used by other companies.
10. | COMMITMENTS AND CONTINGENCIES |
Legal Proceedings
Following the announcement of the Comcast merger on February 13, 2014, eight putative class action complaints challenging the merger were filed on behalf of purported TWC stockholders, seven in the Supreme Court of the State of New York, County of New York and one in the Court of Chancery of the State of Delaware. These complaints were captioned: Barrett v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.); Karl Graulich IRA v. Marcus, et al. (N.Y. Sup. Ct.); Wedeking v.
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Time Warner Cable Inc., et al. (N.Y. Sup. Ct.); Lassoff v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.); Thomas v. Marcus, et al. (N.Y. Sup. Ct.); Tangarone v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.); Louisiana Municipal Police Employees Retirement System v. Black, et al. (Del. Ch.); and Empire State Supply Corp. v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.). On March 25, 2014, the plaintiff in Tangarone v. Time Warner Cable Inc. voluntarily discontinued the action in the New York Supreme Court and re-filed the action in the Court of Chancery of the State of Delaware under the caption Tangarone v. Time Warner Cable Inc, et al. (Del. Ch.). Likewise, on March 26, 2014, the plaintiffs in Empire State Supply Corp. v. Time Warner Cable Inc., et al. voluntarily discontinued the action in the New York Supreme Court, and re-filed the action on March 27, 2014 in the Court of Chancery of the State of Delaware under the caption Empire State Supply Corp. v. Time Warner Cable Inc., et al. (Del. Ch.). On March 28, 2014, the plaintiffs in Louisiana Municipal Police Employees Retirement System v. Black, et al. (Del. Ch.) filed an amended complaint. On April 2, 2014, the Court orally granted a motion to consolidate the pending actions in the New York Supreme Court under the caption Barrett, et al. v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.), which the Court did formally by written order on April 15, 2014. On April 3, 2014, the plaintiffs in Barrett, et al. v. Time Warner Cable Inc., et al. (N.Y. Sup. Ct.) filed a consolidated amended complaint. The various complaints name as defendants the Company, the members of the Companys Board of Directors, Comcast and Tango Acquisition Sub, Inc. (Merger Sub). The complaints assert that the members of the Companys Board of Directors breached their fiduciary duties to the Companys stockholders during the Comcast merger negotiations and by entering into the Merger Agreement and approving the Comcast merger, and that Comcast and Merger Sub aided and abetted such breaches of fiduciary duties. The complaints also allege that the Company and its Board of Directors failed to disclose in the registration statement related to the Comcast merger material facts relating to the merger. The complaints seek, among other relief, injunctive relief enjoining the shareholder vote on the Comcast merger, unspecified declaratory and equitable relief, compensatory damages in an unspecified amount, and costs and fees. On July 22, 2014, the parties to the litigation entered into a memorandum of understanding reflecting the terms of an agreement, subject to final approval by the New York Supreme Court and certain other conditions, to settle all of the outstanding litigation challenging the merger. The Company believes that the claims asserted against it in the lawsuits are without merit and, if the settlement does not receive final approval by the New York Supreme Court or otherwise is not consummated, intends to defend against the litigation vigorously.
On December 19, 2011, Sprint Communications Company L.P. filed a complaint in the U.S. District Court for the District of Kansas alleging that the Company infringes 12 patents purportedly relating to Voice over Internet Protocol (VoIP) services. The plaintiff is seeking unspecified monetary damages as well as injunctive relief. The Company intends to defend against this lawsuit vigorously, but is unable to predict the outcome of this lawsuit or reasonably estimate a range of possible loss.
The Company is the defendant in In re: Set-Top Cable Television Box Antitrust Litigation, ten purported class actions filed in federal district courts throughout the U.S. These actions are subject to a Multidistrict Litigation (MDL) Order transferring the cases for pretrial proceedings to the U.S. District Court for the Southern District of New York. On July 26, 2010, the plaintiffs filed a third amended consolidated class action complaint (the Third Amended Complaint), alleging that the Company violated Section 1 of the Sherman Antitrust Act, various state antitrust laws and state unfair/deceptive trade practices statutes by tying the sales of premium cable television services to the leasing of set-top converter boxes. The plaintiffs are seeking, among other things, unspecified treble monetary damages and an injunction to cease such alleged practices. On September 30, 2010, the Company filed a motion to dismiss the Third Amended Complaint, which the court granted on April 8, 2011. On June 17, 2011, the plaintiffs appealed this decision to the U.S. Court of Appeals for the Second Circuit. The Company intends to defend against this lawsuit vigorously, but is unable to predict the outcome of this lawsuit or reasonably estimate a range of possible loss.
From time to time, the Company receives notices from third parties and, in some cases, is party to litigation alleging that certain of the Companys services or technologies infringe the intellectual property rights of others. Claims of intellectual property infringement could require TWC to enter into royalty or licensing agreements on unfavorable terms, incur substantial monetary liability or be enjoined preliminarily or permanently from further use of the intellectual property in question. In addition, certain agreements entered into by the Company may require it to indemnify the other party for certain third-party intellectual property infringement claims, which could increase the Companys damages and its costs of defending against such claims. Even if the claims are without merit, defending against the claims can be time consuming and costly.
37
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Other Matters
The California Attorney General and the Alameda County, California District Attorney are investigating whether certain of the Companys waste disposal policies, procedures and practices are in violation of the California Business and Professions Code and the California Health and Safety Code. These entities are seeking injunctive relief, unspecified civil penalties and attorneys fees. While the Company is unable to predict the outcome of this investigation, it does not believe that the outcome will have a material effect on its results of operations, financial condition or cash flows.
In March 2003, the interests in cable networks and filmed entertainment held by Time Warner Entertainment Company, L.P. (TWE) were transferred to Time Warner and all of Time Warners interests in cable systems were transferred to the Company (the TWE Restructuring). As part of the TWE Restructuring, Time Warner agreed to indemnify the Company from and against any and all liabilities relating to, arising out of or resulting from specified litigation matters brought against the TWE non-cable businesses (and assumed by TWCE in connection with various internal reorganizations). Although Time Warner has agreed to indemnify the Company against such liabilities, TWE (as assumed by TWCE) remains a named party in certain litigation matters.
The costs and other effects of future litigation, governmental investigations, legal and administrative cases and proceedings (whether civil or criminal), settlements, judgments and investigations, claims and changes in pending matters (including those matters described above), and developments or assertions by or against the Company relating to intellectual property rights and intellectual property licenses, could have a material adverse effect on the Companys business, financial condition and operating results.
11. | ADDITIONAL FINANCIAL INFORMATION |
Other Current Assets
Other current assets as of March 31, 2015 and December 31, 2014 consisted of the following (in millions):
March 31, 2015 |
December 31, 2014 |
|||||||
Prepaid income taxes |
$ | 41 | $ | 157 | ||||
Other prepaid expenses |
349 | 208 | ||||||
Other current assets |
26 | 26 | ||||||
|
|
|
|
|||||
Total other current assets |
$ | 416 | $ | 391 | ||||
|
|
|
|
Other Current Liabilities
Other current liabilities as of March 31, 2015 and December 31, 2014 consisted of the following (in millions):
March 31, 2015 |
December 31, 2014 |
|||||||
Accrued interest |
$ | 448 | $ | 486 | ||||
Accrued compensation and benefits |
370 | 397 | ||||||
Accrued dividends |
216 | | ||||||
Accrued insurance |
198 | 199 | ||||||
Accrued franchise fees |
119 | 151 | ||||||
Accrued sales and other taxes |
113 | 132 | ||||||
Other accrued expenses |
424 | 448 | ||||||
|
|
|
|
|||||
Total other current liabilities |
$ | 1,888 | $ | 1,813 | ||||
|
|
|
|
38
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Related Party Transactions
Transactions with related parties (i.e., equity-method investees) for the three months ended March 31, 2015 and 2014 consisted of the following (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Revenue |
$ | 1 | $ | 1 | ||||
|
|
|
|
|||||
Costs and expenses: |
||||||||
Programming and content |
$ | (48) | $ | (45) | ||||
Other operating |
(5) | (6) | ||||||
|
|
|
|
|||||
Total |
$ | (53) | $ | (51) | ||||
|
|
|
|
Supplemental Cash Flow Information
Additional financial information with respect to cash (payments) and receipts for the three months ended March 31, 2015 and 2014 is as follows (in millions):
Three Months Ended March 31, | ||||||||
2015 | 2014 | |||||||
Cash paid for interest |
$ | (408) | $ | (439) | ||||
Cash received under interest rate swap contracts |
16 | 24 | ||||||
|
|
|
|
|||||
Cash paid for interest, net |
$ | (392) | $ | (415) | ||||
|
|
|
|
|||||
Cash paid for income taxes |
$ | (5) | $ | (1) | ||||
Cash refunds of income taxes |
2 | 3 | ||||||
|
|
|
|
|||||
Cash (paid for) refunds of income taxes, net |
$ | (3) | $ | 2 | ||||
|
|
|
|
12. | CONDENSED CONSOLIDATING FINANCIAL STATEMENTS |
Set forth below are condensed consolidating financial statements presenting the financial position, results of operations (including comprehensive income) and cash flows of (i) Time Warner Cable Inc. (the Parent Company), (ii) Time Warner Cable Enterprises LLC (TWCE or the Guarantor Subsidiary), a direct 100% owned subsidiary of the Parent Company, (iii) the direct and indirect non-guarantor subsidiaries of the Parent Company (the Non-Guarantor Subsidiaries) on a combined basis and (iv) the eliminations necessary to arrive at the information for Time Warner Cable Inc. on a consolidated basis. The Guarantor Subsidiary has fully and unconditionally guaranteed the debt securities issued by the Parent Company in its 2007 registered exchange offer and subsequent public offerings. The Parent Company directly owns all of the voting and economic interests of the Guarantor Subsidiary.
There are no legal or regulatory restrictions on the Parent Companys ability to obtain funds from any of its 100% owned subsidiaries through dividends, loans or advances.
These condensed consolidating financial statements should be read in conjunction with the consolidated financial statements of Time Warner Cable Inc.
Basis of Presentation
In presenting the condensed consolidating financial statements, the equity method of accounting has been applied to (i) the Parent Companys interests in the Guarantor Subsidiary and the Non-Guarantor Subsidiaries and (ii) the Guarantor Subsidiarys interests in the Non-Guarantor Subsidiaries, where applicable, even though all such subsidiaries meet the requirements to be consolidated under GAAP. All intercompany balances and transactions between the Parent Company, the Guarantor Subsidiary and the Non-Guarantor Subsidiaries have been eliminated, as shown in the column Eliminations. All
39
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TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
assets and liabilities have been allocated to the Parent Company, the Guarantor Subsidiary and the Non-Guarantor Subsidiaries generally based on legal entity ownership. Certain administrative costs have been allocated to the Parent Company, the Guarantor Subsidiary and the Non-Guarantor Subsidiaries based on revenue recorded at the respective entity. The Parent Company allocates 100% of its third-party interest expense, net of interest income received from intercompany loans, to the Guarantor Subsidiary. The income tax provision has been presented based on each subsidiarys legal entity activity including income tax benefits related to allocated administrative costs and interest expense. Deferred income taxes have been presented based upon the temporary differences between the carrying amounts of the respective assets and liabilities of the applicable entities.
Condensed consolidating financial information as of March 31, 2015 and December 31, 2014 and for the three months ended March 31, 2015 and 2014 is as follows (in millions):
Condensed Consolidating Balance Sheet as of March 31, 2015
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and equivalents |
$ | 308 | $ | | $ | 239 | $ | | $ | 547 | ||||||||||
Receivables, net |
51 | | 760 | | 811 | |||||||||||||||
Receivables from affiliated parties |
218 | | 27 | (245) | | |||||||||||||||
Deferred income tax assets |
| | 235 | (3) | 232 | |||||||||||||||
Other current assets |
11 | 44 | 361 | | 416 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
588 | 44 | 1,622 | (248) | 2,006 | |||||||||||||||
Investments in and amounts due from |
45,269 | 47,128 | 7,641 | (100,038) | | |||||||||||||||
Investments |
| 55 | 12 | | 67 | |||||||||||||||
Property, plant and equipment, net |
| 27 | 16,180 | | 16,207 | |||||||||||||||
Intangible assets subject to amortization, net |
| 19 | 492 | | 511 | |||||||||||||||
Intangible assets not subject to amortization |
| | 26,012 | | 26,012 | |||||||||||||||
Goodwill |
| | 3,137 | | 3,137 | |||||||||||||||
Other assets |
328 | | 67 | (5) | 390 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 46,185 | $ | 47,273 | $ | 55,163 | $ | (100,291) | $ | 48,330 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 446 | $ | | $ | 446 | ||||||||||
Deferred revenue and subscriber-related liabilities |
| | 207 | | 207 | |||||||||||||||
Payables to affiliated parties |
27 | 213 | 5 | (245) | | |||||||||||||||
Accrued programming and content expense |
| | 971 | | 971 | |||||||||||||||
Current maturities of long-term debt |
638 | | 9 | | 647 | |||||||||||||||
Other current liabilities |
745 | 24 | 1,122 | (3) | 1,888 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
1,410 | 237 | 2,760 | (248) | 4,159 | |||||||||||||||
Long-term debt |
20,505 | 2,059 | 75 | | 22,639 | |||||||||||||||
Deferred income tax liabilities, net |
| 222 | 12,399 | (5) | 12,616 | |||||||||||||||
Long-term payables to affiliated parties |
7,641 | 14,702 | | (22,343) | | |||||||||||||||
Other liabilities |
220 | 93 | 459 | | 772 | |||||||||||||||
TWC shareholders equity: |
||||||||||||||||||||
Due to (from) TWC and subsidiaries |
8,269 | 1,528 | (9,797) | | | |||||||||||||||
Other TWC shareholders equity |
8,140 | 28,432 | 49,263 | (77,695) | 8,140 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total TWC shareholders equity |
16,409 | 29,960 | 39,466 | (77,695) | 8,140 | |||||||||||||||
Noncontrolling interests |
| | 4 | | 4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
16,409 | 29,960 | 39,470 | (77,695) | 8,144 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 46,185 | $ | 47,273 | $ | 55,163 | $ | (100,291) | $ | 48,330 | ||||||||||
|
|
|
|
|
|
|
|
|
|
40
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Condensed Consolidating Balance Sheet as of December 31, 2014
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
ASSETS |
||||||||||||||||||||
Current assets: |
||||||||||||||||||||
Cash and equivalents |
$ | 481 | $ | | $ | 226 | $ | | $ | 707 | ||||||||||
Receivables, net |
31 | | 918 | | 949 | |||||||||||||||
Receivables from affiliated parties |
215 | | 27 | (242) | | |||||||||||||||
Deferred income tax assets |
9 | | 264 | (4) | 269 | |||||||||||||||
Other current assets |
121 | 46 | 224 | | 391 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current assets |
857 | 46 | 1,659 | (246) | 2,316 | |||||||||||||||
Investments in and amounts due from consolidated subsidiaries |
44,790 | 46,401 | 7,641 | (98,832) | | |||||||||||||||
Investments |
| 51 | 13 | | 64 | |||||||||||||||
Property, plant and equipment, net |
| 28 | 15,962 | | 15,990 | |||||||||||||||
Intangible assets subject to amortization, net |
| 5 | 518 | | 523 | |||||||||||||||
Intangible assets not subject to amortization |
| | 26,012 | | 26,012 | |||||||||||||||
Goodwill |
| | 3,137 | | 3,137 | |||||||||||||||
Other assets |
385 | | 74 | | 459 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total assets |
$ | 46,032 | $ | 46,531 | $ | 55,016 | $ | (99,078) | $ | 48,501 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current liabilities: |
||||||||||||||||||||
Accounts payable |
$ | | $ | | $ | 567 | $ | | $ | 567 | ||||||||||
Deferred revenue and subscriber-related liabilities |
| | 198 | | 198 | |||||||||||||||
Payables to affiliated parties |
27 | 212 | 3 | (242) | | |||||||||||||||
Accrued programming and content expense |
| | 902 | | 902 | |||||||||||||||
Current maturities of long-term debt |
1,008 | | 9 | | 1,017 | |||||||||||||||
Other current liabilities |
529 | 67 | 1,221 | (4) | 1,813 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total current liabilities |
1,564 | 279 | 2,900 | (246) | 4,497 | |||||||||||||||
Long-term debt |
20,564 | 2,061 | 76 | | 22,701 | |||||||||||||||
Deferred income tax liabilities, net |
23 | 214 | 12,323 | | 12,560 | |||||||||||||||
Long-term payables to affiliated parties |
7,641 | 14,702 | | (22,343) | | |||||||||||||||
Other liabilities |
154 | 91 | 481 | | 726 | |||||||||||||||
TWC shareholders equity: |
||||||||||||||||||||
Due to (from) TWC and subsidiaries |
8,073 | 1,216 | (9,289) | | | |||||||||||||||
Other TWC shareholders equity |
8,013 | 27,968 | 48,521 | (76,489) | 8,013 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total TWC shareholders equity |
16,086 | 29,184 | 39,232 | (76,489) | 8,013 | |||||||||||||||
Noncontrolling interests |
| | 4 | | 4 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total equity |
16,086 | 29,184 | 39,236 | (76,489) | 8,017 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total liabilities and equity |
$ | 46,032 | $ | 46,531 | $ | 55,016 | $ | (99,078) | $ | 48,501 | ||||||||||
|
|
|
|
|
|
|
|
|
|
41
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2015
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Revenue |
$ | | $ | | $ | 5,777 | $ | | $ | 5,777 | ||||||||||
Costs and expenses: |
||||||||||||||||||||
Programming and content |
| | 1,419 | | 1,419 | |||||||||||||||
Sales and marketing |
| | 559 | | 559 | |||||||||||||||
Technical operations |
| | 399 | | 399 | |||||||||||||||
Customer care |
| | 226 | | 226 | |||||||||||||||
Other operating |
| | 1,178 | | 1,178 | |||||||||||||||
Depreciation |
| | 852 | | 852 | |||||||||||||||
Amortization |
| | 34 | | 34 | |||||||||||||||
Merger-related and restructuring costs |
4 | | 22 | | 26 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and expenses |
4 | | 4,689 | | 4,693 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income (Loss) |
(4) | | 1,088 | | 1,084 | |||||||||||||||
Equity in pretax income of consolidated |
807 | 1,131 | | (1,938) | | |||||||||||||||
Interest income (expense), net |
(57) | (350) | 59 | | (348) | |||||||||||||||
Other income, net |
| 1 | 9 | | 10 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
746 | 782 | 1,156 | (1,938) | 746 | |||||||||||||||
Income tax provision |
(288) | (303) | (289) | 592 | (288) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
458 | 479 | 867 | (1,346) | 458 | |||||||||||||||
Less: Net income attributable to |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to TWC shareholders |
$ | 458 | $ | 479 | $ | 867 | $ | (1,346) | $ | 458 | ||||||||||
|
|
|
|
|
|
|
|
|
|
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended March 31, 2015
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Net income |
$ | 458 | $ | 479 | $ | 867 | $ | (1,346) | $ | 458 | ||||||||||
Change in accumulated unrealized losses on |
6 | | | | 6 | |||||||||||||||
Change in accumulated deferred gains (losses) |
(18) | | | | (18) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive loss |
(12) | | | | (12) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
446 | 479 | 867 | (1,346) | 446 | |||||||||||||||
Less: Comprehensive income attributable to noncontrolling interests |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to |
$ | 446 | $ | 479 | $ | 867 | $ | (1,346) | $ | 446 | ||||||||||
|
|
|
|
|
|
|
|
|
|
42
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Condensed Consolidating Statement of Operations for the Three Months Ended March 31, 2014
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Revenue |
$ | | $ | | $ | 5,582 | $ | | $ | 5,582 | ||||||||||
Costs and expenses: |
||||||||||||||||||||
Programming and content |
| | 1,309 | | 1,309 | |||||||||||||||
Sales and marketing |
| | 555 | | 555 | |||||||||||||||
Technical operations |
| | 371 | | 371 | |||||||||||||||
Customer care |
| | 205 | | 205 | |||||||||||||||
Other operating |
| | 1,162 | | 1,162 | |||||||||||||||
Depreciation |
| | 775 | | 775 | |||||||||||||||
Amortization |
| | 33 | | 33 | |||||||||||||||
Merger-related and restructuring costs |
33 | | 47 | | 80 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total costs and expenses |
33 | | 4,457 | | 4,490 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Operating Income (Loss) |
(33) | | 1,125 | | 1,092 | |||||||||||||||
Equity in pretax income of consolidated subsidiaries |
824 | 1,152 | | (1,976) | | |||||||||||||||
Interest income (expense), net |
(48) | (366) | 50 | | (364) | |||||||||||||||
Other income, net |
| 5 | 10 | | 15 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Income before income taxes |
743 | 791 | 1,185 | (1,976) | 743 | |||||||||||||||
Income tax provision |
(264) | (284) | (295) | 579 | (264) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income |
479 | 507 | 890 | (1,397) | 479 | |||||||||||||||
Less: Net income attributable to |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Net income attributable to TWC shareholders |
$ | 479 | $ | 507 | $ | 890 | $ | (1,397) | $ | 479 | ||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended March 31, 2014 | ||||||||||||||||||||
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Net income |
$ | 479 | $ | 507 | $ | 890 | $ | (1,397) | $ | 479 | ||||||||||
Change in accumulated unrealized losses on pension benefit obligation, net of tax |
(1) | | | | (1) | |||||||||||||||
Change in accumulated deferred gains (losses) |
(45) | | | | (45) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Other comprehensive loss |
(46) | | | | (46) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income |
433 | 507 | 890 | (1,397) | 433 | |||||||||||||||
Less: Comprehensive income attributable to noncontrolling interests |
| | | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Comprehensive income attributable to |
$ | 433 | $ | 507 | $ | 890 | $ | (1,397) | $ | 433 | ||||||||||
|
|
|
|
|
|
|
|
|
|
43
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2015
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Cash provided (used) by operating activities |
$ | 90 | $ | (407) | $ | 1,825 | $ | | $ | 1,508 | ||||||||||
INVESTING ACTIVITIES |
||||||||||||||||||||
Capital expenditures |
| | (1,134) | | (1,134) | |||||||||||||||
Acquisition of intangible assets |
| (14) | (9) | | (23) | |||||||||||||||
Other investing activities |
| (3) | 6 | | 3 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash used by investing activities |
| (17) | (1,137) | | (1,154) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
FINANCING ACTIVITIES |
||||||||||||||||||||
Short-term borrowings, net |
131 | | | | 131 | |||||||||||||||
Repayments of long-term debt |
(500) | | | | (500) | |||||||||||||||
Dividends paid |
(216) | | | | (216) | |||||||||||||||
Proceeds from exercise of stock options |
71 | | | | 71 | |||||||||||||||
Excess tax benefit from equity-based compensation |
56 | | | | 56 | |||||||||||||||
Taxes paid in cash in lieu of shares issued for |
| | (56) | | (56) | |||||||||||||||
Net change in investments in and amounts due |
195 | 424 | (619) | | | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash provided (used) by financing activities |
(263) | 424 | (675) | | (514) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Increase (decrease) in cash and equivalents |
(173) | | 13 | | (160) | |||||||||||||||
Cash and equivalents at beginning of period |
481 | | 226 | | 707 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and equivalents at end of period |
$ | 308 | $ | | $ | 239 | $ | | $ | 547 | ||||||||||
|
|
|
|
|
|
|
|
|
|
44
Table of Contents
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2014
Parent Company |
Guarantor Subsidiary |
Non- Guarantor Subsidiaries |
Eliminations | TWC Consolidated |
||||||||||||||||
Cash provided (used) by operating activities |
$ | 73 | $ | (362) | $ | 1,686 | $ | | $ | 1,397 | ||||||||||
INVESTING ACTIVITIES |
||||||||||||||||||||
Capital expenditures |
| | (834) | | (834) | |||||||||||||||
Acquisition of intangible assets |
| | (12) | | (12) | |||||||||||||||
Other investing activities |
18 | (2) | 11 | | 27 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash provided (used) by investing activities |
18 | (2) | (835) | | (819) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
FINANCING ACTIVITIES |
||||||||||||||||||||
Short-term borrowings, net |
1,544 | | | | 1,544 | |||||||||||||||
Repayments of long-term debt |
(750) | | | | (750) | |||||||||||||||
Dividends paid |
(214) | | | | (214) | |||||||||||||||
Repurchases of common stock |
(259) | | | | (259) | |||||||||||||||
Proceeds from exercise of stock options |
79 | | | | 79 | |||||||||||||||
Excess tax benefit from equity-based compensation |
78 | | | | 78 | |||||||||||||||
Taxes paid in cash in lieu of shares issued for equity-based compensation |
| | (66) | | (66) | |||||||||||||||
Net collateral received on derivative |
43 | | | | 43 | |||||||||||||||
Net change in investments in and amounts due from consolidated subsidiaries |
419 | 364 | (783) | | | |||||||||||||||
Other financing activities |
(1) | | | | (1) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash provided (used) by financing activities |
939 | 364 | (849) | | 454 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Increase in cash and equivalents |
1,030 | | 2 | | 1,032 | |||||||||||||||
Cash and equivalents at beginning of period |
316 | | 209 | | 525 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Cash and equivalents at end of period |
$ | 1,346 | $ | | $ | 211 | $ | | $ | 1,557 | ||||||||||
|
|
|
|
|
|
|
|
|
|
45
Table of Contents
The information set forth under Note 10 to the accompanying consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated herein by reference.
There have been no material changes in the Companys risk factors from those disclosed in Part I, Item 1A of the Companys Annual Report on Form 10-K for the year ended December 31, 2014.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
In connection with the Companys entry into the merger agreement with Comcast Corporation, the Company suspended its common stock repurchase program (the Stock Repurchase Program) on February 13, 2014. The Company did not purchase any equity securities registered by the Company pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, during the quarter ended March 31, 2015 and, as of March 31, 2015, the Company had $2.723 billion remaining under the Stock Repurchase Program authorization.
Item 4. Mine Safety Disclosures.
Not applicable.
The exhibits listed on the accompanying Exhibit Index are filed or incorporated by reference as a part of this report and such Exhibit Index is incorporated herein by reference.
46
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TIME WARNER CABLE INC. |
||||||||
By: |
/s/ Arthur T. Minson, Jr. |
|||||||
Name: | Arthur T. Minson, Jr. |
|||||||
Title: | Executive Vice President and |
|||||||
Chief Financial Officer |
Date: April 30, 2015
47
Table of Contents
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit Number |
Description | |
10.1* | Letter Agreement, dated August 20, 2014, between Time Warner Cable Inc. and Marc Lawrence-Apfelbaum. | |
10.2* | Employment Agreement, dated October 25, 2011 and effective as of November 1, 2011, between Time Warner Cable Inc. and Peter C. Stern. | |
10.3* | Letter Agreement, dated January 15, 2014, between Time Warner Cable Inc. and Peter C. Stern. | |
10.4 | Letter dated January 28, 2015 among Comcast Corporation, Tango Acquisition Sub, Inc. and Time Warner Cable Inc. (incorporated herein by reference to Exhibit 99.1 to the Companys Current Report on Form 8-K dated January 28, 2015 and filed with the SEC on January 29, 2015). | |
31.1* | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. | |
31.2* | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, with respect to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. | |
32* | Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, with respect to the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2015. | |
101 | The following financial information from the Companys Quarterly Report on Form 10-Q for the quarter ended March 31, 2015, filed with the SEC on April 30, 2015, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheet as of March 31, 2015 and December 31, 2014, (ii) Consolidated Statement of Operations for the three months ended March 31, 2015 and 2014, (iii) Consolidated Statement of Comprehensive Income for the three months ended March 31, 2015 and 2014, (iv) Consolidated Statement of Cash Flows for the three months ended March 31, 2015 and 2014, (v) Consolidated Statement of Equity for the three months ended March 31, 2015 and 2014 and (vi) Notes to Consolidated Financial Statements. |
* | Filed herewith. |
| This exhibit will not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934 (15 U.S.C. 78r), or otherwise subject to the liability of that section. Such exhibit will not be deemed to be incorporated by reference into any filing under the Securities Act or Securities Exchange Act, except to the extent that the Company specifically incorporates it by reference. |
48
Exhibit 10.1
August 15, 2014
Mr. Marc Lawrence-Apfelbaum
60 Columbus Circle
New York, NY 10023
Dear Marc:
Pursuant to Section 1 of the Employment Agreement effective as of February 16, 2012 between you and Time Warner Cable Inc. (the Agreement), the Agreement expires on February 15, 2015. This letter offers to amend the Agreement to extend the term through December 31, 2016. All other provisions of the Agreement will remain unchanged and in full force and effect. For the avoidance of doubt, this extension and the terms of the Agreement shall not change the vesting treatment of the Special Restricted Stock Unit Agreement 2015 and Special Restricted Stock Unit Agreement 2016 for the periods before February 12, 2015 and February 12, 2016, respectively, which shall be governed by the terms of the award agreements.
Please indicate your acceptance of the foregoing extension of the term of your Agreement by executing this letter no later than August 31, 2014 and returning it immediately via interoffice mail to: Meredith Gill, HR-Executive Compensation, Charlotte, NC.
Sincerely, | ||||
TIME WARNER CABLE INC. | ||||
By: | /s/ Peter Stern | |||
Peter Stern | ||||
Executive Vice President, | ||||
Chief Strategy, People and Corporate Development Officer |
AGREED AND ACCEPTED: | ||
Marc Lawrence-Apfelbaum | ||
/s/ Marc Lawrence-Apfelbaum | ||
Date: | 8.20.14 |
Exhibit 10.2
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT (the Agreement) made as of October 25, 2011 effective as of November 1, 2011 (the Effective Date), between TIME WARNER CABLE INC. (the Company), a Delaware corporation, and PETER STERN (you or your). This Agreement supersedes your employment agreement with the Company dated March 1, 2010 (the Original Effective Date).
You and the Company desire to set forth the terms and conditions of your employment by the Company and agree as follows:
1. Term of Agreement. The term of this Agreement shall be for the period beginning on the Effective Date and ending on October 31, 2014 (the Term), subject, however, to earlier termination as set forth in this Agreement.
2. Employment. During the Term, (a) you shall serve as Executive Vice President, Chief Strategy Officer of the Company, and you shall have the authority, functions, duties, powers and responsibilities normally associated with such position (including, without limitation, the authority, functions, duties, powers and responsibilities you hold as of the date hereof), and such other title, authority, functions, duties, powers and responsibilities as may be assigned to you from time to time by the Company consistent with your senior position with the Company; (b) your services shall be rendered on a substantially full-time, exclusive basis and you will apply on a full-time basis all of your skill and experience to the performance of your duties; (c) you shall report to the Chief Executive Officer of the Company (the CEO) or such other senior executive as the Company determines in its sole discretion; (d) you shall have no other employment and, without the prior written consent of the CEO, no outside business activities which require the devotion of substantial amounts of your time; (e) you shall adhere to the Companys policies in effect during your employment, including its Standards of Business Conduct, Insider Trading Policy, and the stock ownership or retention guidelines adopted by the Company, if any; and (f) the place for the performance of your services shall be at the Companys principal corporate offices in the New York metropolitan area, subject to such reasonable travel as may be required in the performance of your duties. For purposes of this Section 2, Company shall mean either Time Warner Cable Inc. or, if Time Warner Cable Inc. becomes a controlled subsidiary of another entity, then the ultimate parent company of Time Warner Cable Inc. The foregoing shall be subject to the Companys written policies, as in effect from time to time, regarding vacations, holidays, illness and the like.
3. Compensation.
3.1. Base Salary. The Company shall pay you a base salary at the rate of not less than $495,000 per annum during the Term (Base Salary). The Company may increase, but not decrease, your Base Salary during the Term. Base Salary shall be paid in accordance with the Companys customary payroll practices.
3.2. Bonus. In addition to Base Salary, the Company typically pays its executives an annual cash bonus (Bonus). Each year, the Company will establish a target annual bonus (Target Bonus) for you. Following the applicable year, the Companys performance and your personal performance (if applicable) will be considered in the context of your executive duties and any individual goals set for you, and your actual Bonus will be determined. Although as a general matter the Company expects to pay bonuses at the target level in cases of satisfactory performance, it does not commit to do so. Your Bonus is fully discretionary, and your Bonus may be higher or lower than your Target Bonus. Your Bonus amount, if any, will be paid to you between January 1 and March 15 of the calendar year immediately following the performance year in respect of which such Bonus is earned at the same time as bonuses are paid to other senior executives.
3.3. Long-term Incentive Compensation. For each year of the Term, you will be eligible to receive long-term incentive compensation through a mix of stock options, restricted stock, restricted stock units (RSUs), other forms of equity compensation, cash-based long-term plans or other components as may be determined by the Compensation Committee of the Companys Board of Directors (Board) from time to time in its sole discretion (Long-term Incentive Awards), subject to the terms of any Company plans governing the granting of Long-term Incentive Awards, and the terms of any related award agreements in accordance with the Companys customary practices.
3.4. Total Compensation. Each year during the Term, the sum of your Base Salary, Target Bonus, and target value of your Long-term Incentive Awards will be at least $1,745,000, (determined pursuant to the Companys valuation methods) pro-rated with respect to partial years. Although as a general matter the Company expects to pay Bonuses and award Long-term Incentive Awards at the target level in cases of satisfactory performance, it does not commit to do so. Your Bonus and Long-term Incentive Awards are fully discretionary. Accordingly, your Bonus and Long-term Incentive Awards may be higher or lower than your target amounts, and the sum of your Base Salary, Bonus, and value of your Long-term Incentive Awards may be higher or lower than the amount provided for in the first sentence of this paragraph.
2
3.5. Additional Compensation Plans. In addition to the above compensation, and at the Companys discretion, you will be eligible to participate in other compensation plans and programs available to executives at your level (Additional Compensation Plans). The Company shall maintain full discretion to amend, modify or terminate such Additional Compensation Plans, and full discretion over the decision to award you compensation under such Additional Compensation Plans and the amount of such an award, if any.
3.6. Indemnification. You shall be entitled throughout the Term (and after the end of the Term, to the extent relating to service during your employment) to the benefit of the indemnification provisions contained on the date hereof in the Restated Certificate of Incorporation and By-laws of Time Warner Cable Inc. (not including any amendments or additions after the date hereof that limit or narrow, but including any that add to or broaden, the protection afforded to you by those provisions).
4. Termination.
4.1. Termination for Cause; Voluntary Resignation. The Company may terminate your employment for cause and you may voluntarily resign your employment prior to the expiration of the Term. Upon the termination of your employment for cause or your voluntary resignation, all of the obligations under this Agreement shall terminate, other than the Companys obligations set forth below in Section 4.1.2 and the provisions identified in Section 10.13 (Survival).
4.1.1. Definition of Cause. Termination by the Company for cause shall mean termination because of your (a) conviction (treating a nolo contendere plea as a conviction) of a felony (whether or not any right to appeal has been or may be exercised) other than as a result of a moving violation or a Limited Vicarious Liability (as defined below); (b) willful failure or refusal without proper cause to perform your material duties with the Company, including your material obligations under this Agreement (other than any such failure resulting from your incapacity due to physical or mental impairment); (c) willful misappropriation, embezzlement, fraud or any reckless or willful destruction of Company property having a significant adverse financial effect on the Company or a significant adverse effect on the Companys reputation; (d) willful and material breach of any
3
statutory or common law duty of loyalty to the Company having a significant adverse financial effect on the Company or a significant adverse effect on the Companys reputation; (e) material and willful breach of any of the restrictive covenants provided for in Section 8 (Restrictive Covenants) below; or (f) a willful violation of any material Company policy, including the Companys Standards of Business Conduct having a significant adverse financial effect on the Company or a significant adverse effect on the Companys reputation. Such termination shall be effected by written notice thereof delivered by the Company to you and shall be effective as of the date of such notice; provided however, that if (i) such termination is because of your willful failure or refusal without proper cause to perform your material duties with the Company including any one or more of your material obligations under this Agreement, and (ii) within 15 days following the date of such notice you shall cease your refusal and shall use your best efforts to perform such obligations, the termination shall not be effective. The term Limited Vicarious Liability shall mean any liability which is based on acts of the Company for which you are responsible solely as a result of your office(s) with the Company; provided that (x) you are not directly involved in such acts and either had no prior knowledge of such actions or, upon obtaining such knowledge, promptly acted reasonably and in good faith to attempt to prevent the acts causing such liability or (y) after consulting with the Companys counsel, you reasonably believed that no law was being violated by such acts.
4.1.2. Obligations Upon Termination For Cause or Voluntary Resignation. In the event of your termination of employment by the Company for cause or your voluntary resignation, without prejudice to any other rights or remedies that the Company may have at law or in equity, the Company shall have no further obligation to you other than (i) to pay Base Salary through the effective date of termination, (ii) with respect to any rights you have pursuant to any insurance or other benefit plans or arrangements of the Company, (iii) with respect to any rights to indemnification that you may have under Section 3.6 above, and (iv) if your employment is terminated pursuant to Sections 4.1.1(b) or 4.1.1(f) above, the Company shall pay you any Bonus for any year prior to the year in which such termination of employment occurs that has been determined but not yet paid as of the date of such termination of employment. You hereby disclaim any right to receive a pro rata portion of any Bonus with respect to the year in which such termination or resignation occurs. Payments of Base Salary required under this Section shall be made at the same time as such payments would otherwise have been made to you pursuant to Sections 3.1 (Base Salary) if your employment had not been terminated.
4
4.2. Termination by You for Good Reason and Termination by the Company Without Cause. Unless previously terminated pursuant to any other provision of this Agreement, you shall have the right, exercisable by written notice to the Company, to terminate your employment for Good Reason effective 30 days after the giving of such notice, if, at the time of the giving of such notice, the Company is in material breach of its obligations under this Agreement without your express written consent; provided however, with the exception of clause (i) below, this Agreement shall not so terminate if such notice is the first such notice of termination delivered by you pursuant to this Section 4.2 and within such 30-day period the Company shall have cured all such material breaches. Any such notice of termination for Good Reason must be provided to the Company within 90 days of any material breach of the Agreement. A material breach by the Company shall include, but not be limited to, (i) the Companys material violation of Sections 2(a) or 2(f) with respect to your authority, functions, duties, powers, responsibilities or place of employment, or (ii) the Company failing to cause any successor to all or substantially all of the business and assets of the Company expressly to assume the obligations of the Company under this Agreement as provided by Section 10.4 (Assignability). The Company shall have the right, exercisable by written notice to you, to terminate your employment under this Agreement without cause, which notice shall specify the effective date of such termination.
4.2.1. Termination Benefits. After the effective date of a termination of employment without cause or for Good Reason pursuant to this Section 4.2, you shall receive Base Salary and a pro rata portion of your Bonus through the effective date of termination, subject to the actual achievement of the performance criteria established for the Company for the year of termination; provided that, if applicable, your individual performance score shall be equal to the Companys performance score or, if multiple performance measures are used, the weighted average of the Companys performance scores, as determined by the Company. Your pro rata Bonus pursuant to this Section 4.2.1 shall be paid to you at the times set forth in Section 4.5 (Payments).
4.2.2. Severance Benefits. After the effective date of a termination of employment without cause or for Good Reason pursuant to Section 4.2, you shall continue to receive Base Salary and Bonus compensation and the post-termination benefits specified in Section 7.2 for a period ending on the date which is 24 months after the effective date of such termination (the Severance Period). During the Severance Period you shall be entitled to receive, whether or not you become disabled during the Severance Period, whichever of the following produces greater total payments: (a) the sum of (i) Base Salary at an annual rate equal to your Base Salary in effect immediately prior to the notice of
5
termination, and (ii) an annual Bonus in respect of each calendar year or portion thereof (in which case a pro rata portion of such Bonus will be payable) during the Severance Period equal to your Target Bonus in effect immediately prior to the notice of termination or (b) the sum of (i) Base Salary at an annual rate equal to your Base Salary in effect on the Effective Date, and (ii) an annual Bonus in respect of each calendar year or portion thereof (in which case a pro rata portion of such Bonus will be payable) during the Severance Period equal to your Target Bonus in effect on the Effective Date. Payments made pursuant to this Section 4.2.2 shall be paid to you at the times set forth in Section 4.5 (Payments). Effective as of the date of your termination of employment pursuant to Section 4.2, any outstanding Long-term Incentive Awards granted on and after the Original Effective Date and before the expiration of the Term shall immediately vest in full and any stock option awards granted during such period shall become immediately exercisable for the time periods set forth in the respective stock option award agreements, provided that, if any such Long-term Incentive Awards or stock options are subject to a performance requirement that has not been satisfied and certified by the Board of Directors on the date of your termination of employment, such Long-term Incentive Awards or stock options shall not be immediately vested and exercisable, but shall become fully vested and exercisable upon satisfaction of such performance requirement and certification by the Board of Directors (or, if applicable, upon deemed satisfaction of such performance requirements pursuant to the terms of the Long-term Incentive Awards or stock options).
4.2.2.1. Other Full-Time Employment or Death During the Severance Period. Except as provided in the following sentence, if you accept other full-time employment, excluding employment with an affiliate (Other Employment) during the Severance Period or notify the Company in writing of your intention to terminate your post-termination benefits under Section 7.2, effective upon the commencement of such Other Employment or the effective date of such termination as specified by you in such notice, whichever is applicable, the continuation of the post-termination health and welfare benefits specified in Section 7.2 shall terminate, but you shall continue to receive the remaining payments you would have received pursuant to Section 4.2.2 at the times specified therein. Notwithstanding the foregoing, if you accept employment with any not-for-profit organization, as defined by Internal Revenue Code (Code) Section 501(c), then you shall be entitled to continue to receive the post-termination health and welfare benefits specified in Section 7.2 and the payments as provided in the first sentence of Section 4.2.2. Furthermore, if you accept employment with any affiliate of the Company or die during the Severance Period, then the payments provided for in Section 4.2.2 shall immediately cease and you (or your estate or designated beneficiary(ies)) shall not be entitled to any further payments;
6
provided that, you shall be entitled to a prorated Target Bonus for the year in which your employment by the affiliate commences or the year of your death, as applicable, based on the number of whole or partial months in such calendar year prior to the date of your employment by the affiliate or the date of your death, as determined by the Company. For purposes of this Agreement, the term affiliate shall mean any entity which, directly or indirectly, controls, is controlled by, or is under common control with, the Company. For purposes of enforcing the terms of this Section 4.2.2.1, you acknowledge and agree that you will provide the Company with written notice of your intent to accept Other Employment, other part-time employment, other employment by a not-for-profit entity, or employment by an affiliate, including, the identity of the entity or person you intend to be employed by, the anticipated start date of your employment and a contact at such entity who can verify your employment terms. Any income from any Other Employment you may obtain shall not be applied to reduce the Companys obligations under this Agreement.
4.2.3. Termination of Employment Upon Change In Control. Notwithstanding the foregoing, if your employment is terminated pursuant to Section 4.2 hereof (a) within 24 months following a Change In Control (as defined in the Time Warner Cable 2011 Stock Incentive Plan or any successor plan) or (b) following the Companys execution of an applicable merger, acquisition, sale or other agreement providing for a Change In Control (a CIC Agreement) but before the date that is 24 months after a Change In Control (or, if earlier, the expiration or termination of the CIC Agreement without a Change In Control), you shall (i) receive the severance benefits provided in Section 4.2.2, provided that, for purposes of this sub-clause (i) and sub-clause (ii) of this Section only, your Severance Period under such circumstances shall be 36 months rather than 24 months, and (ii) receive the post-termination benefits provided in Section 7.2. Any employment terminations for cause pursuant to Sections 4.1.1 (b) or 4.1.1 (f) above within 24 months following a Change In Control shall be deemed terminations without cause for purposes of severance benefits (as provided in sub-clauses (i) and (ii) above) and treatment of the Companys (or any successors) outstanding equity awards or other Long-term Incentive Awards that are outstanding as of the employment termination date.
4.3. Expiration of Term. If at the expiration of the Term, your employment shall not have been previously terminated pursuant to the provisions of this Agreement, no Disability Period is then in effect and the parties shall not have agreed in a signed writing to an extension or renewal of this Agreement or on the terms of a new employment agreement, then this Agreement shall expire and your employment shall continue on an at-will basis. As an at-will employee, upon the termination of your employment
7
without cause, (a) you shall be eligible for participation in any executive-level severance plan or program offered by the Company that will provide a minimum severance benefit equal to twelve (12) months Base Salary and Target Bonus, subject to your execution and delivery of a full release to the Company substantially in the form attached hereto as Annex A or such other form of release as may be implemented for such executive-level severance plan or program, (b) you shall receive immediate vesting in full of any outstanding equity awards or other Long-term Incentive Awards granted on and after the Original Effective Date and before the expiration of the Term and any stock option awards granted during such period shall become immediately exercisable for the time periods set forth in the respective stock option award agreements, and (c) any equity awards granted before the Original Effective Date shall continue to vest until the earlier of (i) 12 months after the date of your termination of employment without cause, and (ii) your commencement of Other Employment; provided that, vested stock options shall remain exercisable for the time periods set forth in the respective stock option award agreements beginning upon the earlier of (x) your commencement of Other Employment and (y) the end of such 12-month period; provided further that, RSU awards granted on or after January 1, 2010 but before the Original Effective Date shall receive pro-rata accelerated vesting treatment based on the number of RSUs that would have vested during such 12 month period and the related shares shall be distributed pursuant to the terms of the award agreement and any addendums thereto; provided further that, if any Long-term Incentive Awards or stock options granted during the Term are subject to a performance requirement that has not been satisfied and certified by the Board of Directors on the date of your termination of employment, such Long-term Incentive Awards or stock options shall not be immediately vested and exercisable, but shall become fully vested and exercisable upon satisfaction of such performance requirement and certification by the Board of Directors (or, if applicable, upon deemed satisfaction of such performance requirements pursuant to the terms of the Long-term Incentive Awards or stock options).
4.4. Release. A condition precedent to the Companys obligation to make the payments associated with a termination of employment pursuant to Sections 4.2 (Termination Without Cause or For Good Reason), 4.3 (Expiration of Term) and 5.1 (Disability) shall be your execution and delivery of a release of all claims substantially in the form attached hereto as Annex A, as may be revised from time to time as necessary to reflect changes in federal or state laws to ensure that such release is valid. Such release must be signed by you and returned to the Company no later than 21 days (or, if required by law, 45 days) after your separation from service with the Company. If you shall fail to execute and deliver such release, or if you revoke such release as provided therein, then you shall not be entitled to any severance benefits provided in Section 4.2.2 or Section 4.3 or Disability Period (defined below) payments under the Agreement and you shall reimburse the Company for any such payments made to you in anticipation of your execution of the release or prior to the revocation of such release.
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4.5. Payments. Payments of Base Salary and Bonus required to be made to you after a termination of employment pursuant to Sections 4, 5 or 6 shall be made at the same times as such payments otherwise would have been paid to you pursuant to Sections 3.1 (Base Salary) and 3.2 (Bonus) if your employment had not been terminated, or such other time as required for compliance with Code Section 409A as set forth in Section 10.15 below.
4.6. Code §§ 280G and 4999. Notwithstanding anything to the contrary contained in this Agreement, to the extent that any amount, stock option, restricted stock, RSUs, other equity awards or benefits paid or distributed to you pursuant to this Agreement or any other agreement or arrangement between the Company and you (collectively, the 280G Payments) (a) constitute a parachute payment within the meaning of Section 280G of the Code and (b) but for this Section 4.6, would be subject to the excise tax imposed by Section 4999 of the Code, then the 280G Payments shall be payable either (i) in full or (ii) in such lesser amount which would result in no portion of such 280G Payments being subject to excise tax under Section 4999 of the Code; whichever of the foregoing amounts, taking into account the applicable federal, state and local income or excise taxes (including the excise tax imposed by Section 4999) results in your receipt on an after-tax basis, of the greatest amount of benefits under this Agreement, notwithstanding that all or some portion of such benefits may be taxable under Section 4999 of the Code. Unless you and the Company otherwise agree in writing, any determination required under this Section shall be made in writing by an independent public accountant selected by the Company (the Accountants), whose determination shall be conclusive and binding upon you and the Company for all purposes. For purposes of making the calculations required by this Section, the Accountants may make reasonable assumptions and approximations concerning applicable taxes and may rely on reasonable, good faith interpretations concerning the application of Sections 280G and 4999 of the Code. The Company and you shall furnish to the Accountants such information and documents as the Accountants may reasonably request in order to make a determination under this Section. The Company shall bear all costs the Accountants may reasonably incur in connection with any calculations contemplated by this Section, as well as any reasonable legal or accountant expenses, or any additional taxes, that you may incur as a result of any calculation errors made by the Accountant and/or the Company in connection with the Code Section 4999 excise tax analysis contemplated by this Section.
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4.6.1. Additional 280G Payments. If you receive reduced 280G Payments by reason of this Section 4.6 and it is established pursuant to a final determination of the court or an Internal Revenue Service proceeding that you could have received a greater amount without resulting in an excise tax, then the Company shall promptly thereafter pay you the aggregate additional amount which could have been paid without resulting in an excise tax as soon as practicable.
4.6.2. Review of Accountant Determinations. The parties agree to cooperate generally and in good faith with respect to (i) the review and determinations to be undertaken by the Accountants as set forth in this Section 4.6 and (ii) any audit, claim or other proceeding brought by the Internal Revenue Service or similar state authority to review or contest or otherwise related to the determinations of the Accountants as provided for in this Section 4.6, including any claim or position taken by the Internal Revenue Service that, if successful, would require the payment by you of any additional excise tax, over and above the amounts of excise tax established under the procedure set forth in this Section 4.6.
4.6.3. Order of 280G Payment Reduction. The reduction of 280G Payments, if applicable, shall be effected in the following order (unless you, to the extent permitted by Section 409A of the Code, elect another method of reduction by written notice to the Company prior to the Section 280G event): (i) any cash severance payments, (ii) any other cash amounts payable to you, (iii) any health and welfare or similar benefits valued as parachute payments, (iv) acceleration of vesting of any stock options for which the exercise price exceeds the then fair market value of the underlying stock, in order of the option tranches with the largest Section 280G parachute value, (v) acceleration of vesting of any equity award that is not a stock option and (vi) acceleration of vesting of any stock options for which the exercise price is less than the fair market value of the underlying stock in such manner as would net you the largest remaining spread value if the options were all exercised as of the Section 280G event.
5. Disability.
5.1. Disability Payments. If during the Term and prior to the delivery of any notice of termination of employment pursuant to Section 4, you become physically or mentally disabled, whether totally or partially, so that you are unable to engage in substantial gainful activity by reason of any medically determinable physical or mental impairment, which can be expected to result in death or can be expected to last for a
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continuous period of not less than twelve (12) months, the Company shall, nevertheless, continue to pay your full compensation (including Bonus) through the last day of the sixth consecutive month of disability or the date on which any shorter periods of disability shall have equaled a total of six months in any twelve-month period (such last day or date being referred to herein as the Disability Date), in lieu of or offset by any payments received by you from Workers Compensation insurance, Social Security, and short- or long-term disability insurance benefits maintained by the Company; provided that, if you die prior to the Disability Date, you are not entitled to any further payments after such date, except as provided in Section 6 below. If you have not resumed your usual duties on or prior to the Disability Date, the Company shall terminate your employment effective as of the Disability Date and pay you a pro rata Bonus based on actual achievement of the performance criteria established for the Company, provided that, if applicable, your individual performance score shall be equal to the Companys performance score or, if multiple performance measures are used, the weighted average of the Companys performance scores for the year in which the Disability Date occurs. Thereafter the Company shall pay you disability benefits for a period of time equal to the Severance Period defined in Section 4.2.2 (the Disability Period), in an annual amount equal to the greater of 75% of your Base Salary and Target Bonus in effect as of the Disability Date or 75% of your Base Salary and Target Bonus in effect as of the Effective Date. All payments pursuant to this Section 5.1 shall be made at the times specified in Section 4.5 (Payments).
5.2. Recovery From Disability. If during the Disability Period you shall fully recover from your disability, the Company shall have the right (exercisable within 60 days after notice from you of such recovery), but not the obligation, to reinstate you to full-time employment at your compensation rate in effect as of the Disability Date. If the Company elects to rehire you, then the Disability Period payments described in Section 5.1 shall cease and this Agreement shall be reinstated in all respects and the Term shall not be extended by virtue of the occurrence of the Disability Period. If the Company elects not to rehire you, during any balance of your Disability Period, you shall be entitled to receipt of the payments described in Section 5.1 and you may obtain Other Employment, subject, however, to the following: (i) you shall perform advisory services to the Company during any balance of the Disability Period and (ii) you shall not be entitled to the post-termination health and welfare benefits provided in Section 7.2 if you obtain Other Employment during the balance of your Disability Period. The advisory services referred to in clause (i) of the immediately preceding sentence shall consist of rendering advice concerning strategic matters as requested by the Company, but you shall not be required to devote more than five days (up to eight hours per day) each month to such services, which shall be performed at a time and place mutually convenient to both parties. Any income from any Other Employment you may obtain during the balance of the Disability Period shall not be applied to reduce the Companys obligations under this Agreement.
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5.3. Other Disability Provisions. The Company shall be entitled to deduct from all payments to be made to you during the Disability Period pursuant to this Section 5 an amount equal to all disability payments received by you during the Disability Period from any Workers Compensation insurance, Social Security and short- or long-term disability insurance benefits maintained by the Company; provided however, that for so long as, and to the extent that, proceeds paid to you from such disability insurance policies are not includible in your income for federal income tax purposes, the Companys deduction with respect to such payments shall be equal to the product of (i) such payments and (ii) a fraction, the numerator of which is one and the denominator of which is one less the maximum marginal rate of federal income taxes applicable to individuals at the time of receipt of such payments. For purposes of clarity, you acknowledge and agree that Sections 4.2 (Termination Without Cause or For Good Reason) and 4.3 (Expiration of Term) shall not apply during the Disability Period and you shall not be entitled to any other notice and severance benefits under this Agreement or otherwise, or to receive or be paid for any accrued vacation time or unused sabbatical, unless payment of such accrued, but unused vacation benefits is otherwise required by state law. Notwithstanding the foregoing, if you die during the Disability Period, the payments provided for in Section 5.1 shall immediately cease and your estate (or designated beneficiary(ies)) shall not be entitled to any further payments; provided that, you shall be entitled to 75% of a prorated Target Bonus for the year in which your death occurs, based on the number of whole or partial months in such calendar year prior to the date of your death, as determined by the Company in its sole discretion, calculated using the greater of your Target Bonus in effect for the year in which your death occurs or your Target Bonus in effect for the year in which the Effective Date occurs.
6. Death. If you die during the Term, this Agreement and all obligations of the Company to make any payments hereunder shall terminate except that your estate (or a designated beneficiary) shall be entitled to receive Base Salary to the last day of the month in which your death occurs and Bonus compensation (at the time bonuses are normally paid) based on the actual achievement of the performance criteria established for the Company, provided that, if applicable, your individual performance score shall be equal to the Companys performance score or, if multiple performance measures are used, the weighted average of the Companys performance scores, but prorated according to the number of whole or partial months you were employed by the Company in such calendar year.
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7. Other Benefits.
7.1. Generally Available Benefits. To the extent that (a) you are eligible under the general provisions thereof (including without limitation, any plan provision providing for participation to be limited to persons who were employees of the Company or certain of its subsidiaries prior to a specific point in time) and (b) the Company maintains such plan or program for the benefit of its executives, during the Term and so long as you are an employee of the Company, you shall be eligible to participate in any pension, excess plan, savings or similar plan or program, group life insurance, hospitalization, medical, vision, dental, accident, disability or similar plan or program, financial counseling reimbursement, and courtesy services of the Company now existing or established hereafter for similarly situated executives.
7.2. Benefits After a Termination or Disability. During the Severance Period or the Disability Period, unless you accept Other Employment as described in Sections 4.2.2 (Severance Benefits) or 5.2 (Recovery From Disability), you shall continue to be eligible to participate in the Companys health and welfare benefit plans, or comparable arrangements that may be implemented for former employees covered by severance arrangements, to the extent such benefits are maintained in effect by the Company for its executives; provided however, (a) you shall not be entitled to any additional awards or grants under any stock option, restricted stock, RSU or other stock based incentive plan or Additional Compensation Plans, (b) any equity awards granted before the Original Effective Date shall continue to vest until the earlier of (i) 12 months after the date of your termination of employment pursuant to Sections 4.2 or 5.1, and (ii) your commencement of Other Employment; provided that, vested stock options shall remain exercisable for the time periods set forth in the respective stock option award agreements beginning upon the earlier of (x) your commencement of Other Employment and (y) the end of such 12-month period; provided further that, RSU awards granted on or after January 1, 2010 but before the Original Effective Date shall receive pro-rata accelerated vesting treatment based on the number of RSUs that would have vested during such 12 month period and the related shares shall be distributed pursuant to the terms of the award agreement and any addendums thereto, (c) any equity awards or other Long-term Incentive Awards granted on or after the Original Effective Date and before the expiration of the Term, shall be subject to the terms and conditions of the respective award agreements and the vesting provisions set forth in Section 4.2.2 and this Section 7.2, (d) during the Term, but only for equity awards granted on and after the Original Effective Date, the Company shall not be permitted to determine that your employment was
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terminated for Performance within the meaning of any stock option, restricted stock, RSU, or other equity compensation agreement between you and the Company, and (e) you shall not be eligible for continuation of Company car, automobile allowance and/or country club membership reimbursements, to the extent applicable, during or after the Severance Period or Disability Period, or any other termination of employment under this Agreement. Effective with your termination of employment pursuant to Sections 4, 5 or 6, you will no longer be permitted to contribute to or receive a Company match in the TWC Savings Plan, or any successor plan, and you will no longer accrue benefit service under the Time Warner Cable Pension Plan or the Time Warner Cable Excess Benefit Pension Plan, or any successor plans, and your rights under those plans will be determined in accordance with the terms of those plans and applicable law. Unless otherwise stated in this Agreement, your rights to benefits and payments under any benefit plans or any insurance or other death benefit plans or arrangements of the Company or under any stock option, restricted stock, RSU, or other equity compensation, Additional Compensation Plans, or any management incentive or other plan of the Company shall be determined in accordance with the terms and provisions of such plans and any related award agreements. Notwithstanding the foregoing, your continued participation in the Companys benefit plans shall be subject to the limitations of applicable law.
7.3. Payments in Lieu of Other Benefits. In the event your employment with the Company is terminated pursuant to any section of this Agreement, you shall not be entitled to notice and severance under the Companys general employee policies or other executive severance plans or programs, or to be paid for any accrued vacation time or unused sabbatical (unless payment of such accrued, but unused vacation benefits is otherwise required by state law), the payments provided for in such sections in this Agreement being in lieu thereof.
8. Restrictive Covenants.
8.1. Confidentiality Covenant. You acknowledge that your employment by the Company will, throughout the term of your employment, bring you into close contact with many confidential affairs of the Company, its affiliates and third parties doing business with the Company, including information about costs, profits, markets, sales, products, key personnel, pricing policies, operational methods, technical processes and other business affairs and methods and other information not readily available to the public, and plans for future development. You further acknowledge that the services to be performed under this Agreement are of a special, unique, unusual, extraordinary and intellectual
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character. You further acknowledge that the business of the Company and its affiliates is international in scope, that its products and services are marketed throughout the world, that the Company and its affiliates compete in nearly all of its business activities with other entities that are or could be located in nearly any part of the world and that the nature of your services, position and expertise are such that you are capable of competing with the Company and its affiliates from nearly any location in the world. In recognition of the foregoing, you covenant and agree:
8.1.1. You shall use all reasonable efforts to keep secret all confidential matters of the Company, its affiliates and third parties and shall not disclose such matters to anyone outside of the Company and its affiliates, or to anyone inside the Company and its affiliates who does not have a need to know or use such information, and shall not use such information for personal benefit or the benefit of a third party, either during or after the Term, except with the Companys written consent, provided that (i) you shall have no such obligation to the extent such matters are or become publicly known other than as a result of your breach of your obligations hereunder, (ii) you may, after giving prior notice to the Company to the extent practicable under the circumstances, disclose such matters to the extent required by applicable laws or governmental regulations or judicial or regulatory process, and (iii) to the extent necessary to enforce the terms of this Agreement; and
8.1.2. You shall deliver promptly to the Company on termination of your employment, or at any other time the Company may so request, all memoranda, notes, records, reports and other documents (and all copies thereof) relating to the Companys and its affiliates businesses, which you obtained while employed by, or otherwise serving or acting on behalf of, the Company and which you may then possess or have under your control.
8.2. Non-solicitation. During your employment with the Company and its affiliates, and if your employment terminates for any reason, whether during or after the Term, including your voluntary resignation or retirement, for a period of one year after such termination, without the prior written consent of the Company, you shall not directly or indirectly, (i) solicit, induce, encourage or attempt to influence any customer, independent contractor, joint venturer or supplier of the Company to cease to do business with or to otherwise terminate his, her or its relationship with the Company, (ii) solicit or hire or cause any entity of which you are an affiliate to solicit or hire, any person who was a full-time employee of the Company at the date of your termination of employment or within six months prior thereto, but such prohibition shall not apply to your secretary or executive assistant, any
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other employee eligible to receive overtime pay or any former employee of the Company who was terminated involuntarily by the Company, so long as you were not, directly or indirectly, involved in the circumstances giving rise to such termination. Nothing in this Section 8.2 shall restrict your ability to engage in general advertising not targeted at Company employees or serve as a reference for an employee with regard to an entity with which you are not affiliated.
8.3. Non-disparagement. During your employment with the Company and its affiliates, and if your employment terminates for any reason, whether during or after the Term, including your voluntary resignation or retirement, at any time after your termination of employment, you shall not, directly or indirectly, disparage, make negative statements about or act in any manner which is intended to damage the goodwill of, or the business or personal reputations of the Company or any of its affiliates, or those individuals who serve or served as an officer or director of the Company or any of its affiliates on or after the Original Effective Date. Nothing in this Section 8.3 shall prohibit or bar you from providing truthful testimony in any legal proceeding, making any truthful disclosure required under law or from enforcing any rights under this Agreement.
8.4. Non-compete. During your employment with the Company and its affiliates, and if your employment terminates for any reason, whether during or after the Term, including your voluntary resignation or retirement, for a period of time equal to the Severance Period defined in Section 4.2.2 (whether or not you are eligible for or receive any severance benefits under Section 4.2.2) or, if you are employed at will, 12 months after your termination of employment for any reason (the Non-compete Period), you shall not, directly or indirectly, without the prior written consent of the CEO, render any services to, or act in any capacity for, any Competitive Entity, or acquire any interest of any type in any Competitive Entity; provided, however, that the foregoing shall not be deemed to prohibit you from acquiring, (a) solely as an investment and through market purchases, securities of any Competitive Entity which are registered under Section 12(b) or 12(g) of the Securities Exchange Act of 1934 and which are publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than one percent (1%) of the outstanding voting power of that entity and (b) securities of any Competitive Entity that are not publicly traded, so long as you are not part of any control group of such Competitive Entity and such securities, including converted securities, do not constitute more than three percent (3%) of the outstanding voting power of that entity. For purposes of the foregoing, the following shall be deemed to be a Competitive Entity: (i) any United States based entity a material portion of the business of
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which is any line of business that comprises a material portion of the business in which the Company engages in, conducts or, to your knowledge, has definitive plans to engage in or conduct and that the Company reasonably expects will comprise a material portion of its business within the succeeding 12 months, whether that business is conducted directly by such entity or a subsidiary of such entity (a Covered Business); provided that, you may be employed by or provide services to an ultimate parent company that owns a subsidiary which is materially engaged in a Covered Business, so long as you demonstrate to the Companys reasonable satisfaction (e.g. represent and warrant to the Company in writing and describe the nature of your responsibilities) that you do not and will not, directly or indirectly, provide any services or advice to, have any responsibility for, or supervision of, any subsidiary materially engaged in a Covered Business, (ii) any entity which has a material commercial relationship with the Company and could reasonably derive a material unfair advantage in dealings with the Company because of confidential information you possess about the Companys products, services, business strategies, financial condition, terms of agreements or other information, or (iii) any operating business that is engaged in or conducted by the Company as to which, to your knowledge, the Company covenants, in writing, not to compete with in connection with the disposition of such business; provided that, this Section 8.4 (iii) shall only apply during your active employment with the Company and its affiliates. In evaluating any requests for written consent of the CEO to be relieved, in whole or in part, of your obligations under this Section 8.4, the CEO shall consider the nature of your position with the Company, the confidential and proprietary information to which you were privy during the course of your employment with the Company, the nature of the employment and position you are seeking with a Competitive Entity, the extent to which you can perform services for any such Competitive Entity without disclosing, using or putting at risk any trade secrets or confidential, proprietary information of the Company, and any other relevant factors, in all instances looking to make decisions that reasonably and properly protect the trade secrets and other confidential, proprietary information of the Company.
8.5. Ownership of Work Product. You acknowledge that during your employment, you may conceive of, discover, invent or create inventions, improvements, new contributions, literary property, material, ideas and discoveries, whether patentable or copyrightable or not (all of the foregoing being collectively referred to herein as Work Product), and that various business opportunities shall be presented to you by reason of your employment by the Company. You acknowledge that all of the foregoing shall be owned by and belong exclusively to the Company and that you shall have no personal interest therein, provided that they are either related in any manner to the business (commercial or experimental) of the Company, or are, in the case of Work Product, conceived or made on the
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Companys time or with the use of the Companys facilities or materials, or, in the case of business opportunities, are presented to you for the possible interest or participation of the Company. You shall (i) promptly disclose any such Work Product and business opportunities to the Company; (ii) assign to the Company, upon request and without additional compensation, the entire rights to such Work Product and business opportunities; (iii) sign all papers necessary to carry out the foregoing; and (iv) give testimony in support of your inventorship or creation in any appropriate case. You agree that you will not assert any rights to any Work Product or business opportunity as having been made or acquired by you prior to the date of this Agreement except for Work Product or business opportunities, if any, disclosed to and acknowledged by the Company in writing prior to the date hereof.
8.6. Reasonable Restrictive Covenants. You acknowledge that the restrictions contained in this Section 8, in light of the nature of the Companys business and your position and responsibilities, are reasonable and necessary to protect the legitimate interests of the Company. You further acknowledge that the restrictions contained in this Section 8 shall survive the termination of your employment as provided in Section 10.13 (Survival), including your voluntary resignation or retirement, and/or the expiration or termination of this Agreement.
9. Notices. All notices, requests, consents and other communications required or permitted to be given under this Agreement shall be effective only if given in writing and shall be deemed to have been duly given if delivered personally or sent by a nationally recognized overnight delivery service, or mailed first-class, postage prepaid, by registered or certified mail, as follows (or to such other or additional address as either party shall designate by notice in writing to the other in accordance herewith):
9.1. If to the Company:
Time Warner Cable Inc.
60 Columbus Circle
New York, NY 10023
Attention: General Counsel
With a copy to:
Time Warner Cable Inc.
7820 Crescent Executive Drive
Charlotte, NC 28217
Attention: Senior Vice President, Compensation & Benefits
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9.2. If to you, to your residence address set forth in the payroll records of the Company.
10. General.
10.1. Governing Law. This Agreement shall be governed by and construed and enforced in accordance with the substantive laws of the State of New York, without regard to its conflict of laws rules, as applicable to agreements made and to be performed entirely in New York. Any legal action or proceeding with respect to this Agreement that is not resolved in arbitration pursuant to Section 10.7 shall be adjudicated in a court located in New York, New York, and the parties irrevocably consent to the personal jurisdiction and venue of such court.
10.2. Captions. The section headings contained herein are for reference purposes only and shall not in any way affect the meaning or interpretation of this Agreement.
10.3. No Other Representations. No representation, promise or inducement has been made by either party that is not embodied in this Agreement, and neither party shall be bound by or be liable for any alleged representation, promise or inducement not so set forth.
10.4. Assignability. This Agreement and your rights and obligations hereunder may not be assigned by you and except as specifically contemplated in this Agreement, neither you, your legal representative nor any beneficiary designated by you shall have any right, without the prior written consent of the Company, to assign, transfer, pledge, hypothecate, anticipate or commute to any person or entity any payment due in the future pursuant to any provision of this Agreement, and any attempt to do so shall be void and shall not be recognized by the Company. The Company shall assign its rights together with its obligations hereunder in connection with any sale, transfer or other disposition of all or substantially all of the Companys business and assets, whether by merger, purchase of stock or assets or otherwise, as the case may be. Upon any such assignment, the Company shall cause any such successor expressly to assume such obligations, and such rights and obligations shall inure to and be binding upon any such successor.
10.5. Amendments; Waivers. This Agreement may be amended, modified, superseded, cancelled, renewed or extended and the terms or covenants hereof may be waived only by written instrument executed by both of the parties hereto, or in the case of
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a waiver, by the party waiving compliance. The failure of either party at any time or times to require performance of any provision hereof shall in no manner affect such partys right at a later time to enforce the same. No waiver by either party of the breach of any term or covenant contained in this Agreement, in any one or more instances, shall be deemed to be, or construed as, a further or continuing waiver of any such breach, or a waiver of the breach of any other term or covenant contained in this Agreement.
10.6. Remedies.
10.6.1. Specific Remedies. In addition to such other rights and remedies as the Company may have at equity or in law with respect to any breach of this Agreement, if you commit a material breach of any of the provisions of Section 8 (Restrictive Covenants), the Company shall have the right and remedy to have such provisions specifically enforced by any court located in New York, New York having equity jurisdiction, it being acknowledged and agreed that any such breach or threatened breach will cause irreparable injury to the Company; provided that, for the non-compete covenant set forth in Section 8.4, the right to specific enforcement shall only apply to the first twelve months of the Non-compete Period. Upon a judicial determination that any of the restrictive covenants set forth in Section 8 are overbroad in duration or scope, this Agreement shall be deemed to be modified so as to effect the original intent of the parties as closely as possible to the end that the restrictive covenants contemplated in Section 8 are fulfilled to the greatest extent possible.
10.6.2. Reduction of Severance Payments and Forfeiture of Long-term Incentive Awards. Notwithstanding any provision of this Agreement to the contrary, if you breach any of the provisions of Section 8 during the relevant restricted periods provided for therein, as determined by the Company, all payment and other obligations of the Company pursuant to Sections 4.2.2 (Severance Benefits), 4.2.3 (Termination Upon CIC), 4.3 (Expiration of Term), 5.1 (Disability Payments) or 7.2 (Benefits After Termination) shall cease as of the date of the breach and you agree to forfeit such payments and obligations while in breach of the provisions of Section 8; provided that, the balance of any remaining payments or other obligations due you pursuant to Sections 4.2.2, 4.2.3, 4.3, 5.1 or 7.2, if any, shall be provided to you as scheduled if you cease to engage in the conduct that violates the provisions of Section 8 (whether at the request of the Company, as the result of an injunction or otherwise). Furthermore, any breach of the provisions of Section 8 during the relevant restricted periods provided for therein shall result in the consequences, if any, provided for under the terms of your Long-term Incentive Awards. Nothing in this Section 10.6.2 shall limit your repayment obligations to the Company, if any, under Section 10.6.3 or Section 10.6.4 below.
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10.6.3. Incentive Compensation Forfeiture. In addition to the remedies available to the Company pursuant to Sections 10.6.1 and 10.6.2 above, you agree that in the event the Company is required to file an adverse restatement of earnings and it is determined by the Board or a committee thereof that (a) you were involved, had knowledge of or, by virtue of your position and duties, should have known that the earnings at issue were false or misleading when originally filed, and (b) the false or misleading earnings filed resulted in compensation to executives that otherwise would not have been earned, vested or paid, then the Company shall be entitled to any one or all of the following additional remedies, as provided below, or some lesser amount determined by the Board or a committee thereof in its sole discretion:
10.6.3.1. Bonus or Other Cash Incentive Repayments. You shall repay to the Company, by certified check, within sixty (60) days of a written demand, the amount by which your Bonus or other cash incentive compensation payments made during the Forfeiture Period (defined below) would have been reduced had the Company not relied on the false or misleading financial statements, as determined by the Company in its sole discretion. For purposes of this Agreement, Forfeiture Period shall mean the three year period following the last day of the fiscal year of the financial statements restated by the Company; provided that, such Forfeiture Period shall not apply if the adverse restatement is filed by the Company more than three years after the last day of the fiscal year of the restated financial statements.
10.6.3.2. Performance-Based Equity Award Repayments. In regard only to any performance-based equity awards granted to you by the Company, you shall repay to the Company, by certified check, within sixty (60) days after a written demand is made by the Company, an amount equal to (a) the total amount of Award Gain (as defined herein) realized by you during the Forfeiture Period upon each exercise of such performance-based options and the value you have received with respect to any settlement or payment in connection with any other performance-based equity awards, and (b) the fair market value of all other performance-based equity awards granted to you or which have become vested during the Forfeiture Period; provided that, the return to the Company of such other performance-based equity awards shall satisfy your repayment obligations with respect to amounts owed pursuant to this sub-clause (b); provided further that, your repayment obligations under this Section 10.6.3.2 shall be limited to the extent that the granting or value of the performance-based equity awards was impacted by the Companys reliance on the false or misleading financial statements during the Forfeiture Period. Award
21
Gain shall mean, with respect to performance-based equity awards only, the product of (x) the fair market value per share of stock at the date of such option exercise or exercise of other equity awards (without regard to any subsequent change in the market price of such share of stock) minus the exercise price times (y) the number of shares as to which the options and other equity awards were exercised at that date.
10.6.3.3. Incentive Compensation Forfeiture Offset. Notwithstanding any other provision of this Agreement to the contrary, and to the extent permitted by applicable law, the Company shall have the right to offset against any amounts owed to you by the Company any repayment obligations or liabilities that you may have under Sections 10.6.3.1 and 10.6.3.2 of this Agreement.
10.6.4. Other Incentive Compensation Repayments. You agree that, if you are or become an executive officer subject to the incentive compensation repayment requirements of The Dodd-Frank Wall Street Reform and Consumer Protection Act, you will enter into an amendment to this Section or a separate written agreement with the Company to comply with the Act and any regulations thereunder if required by the Act or any regulations thereunder.
10.7. Resolution of Disputes. Except as provided in the preceding Section 10.6 (Remedies), any dispute or controversy arising with respect to this Agreement and your employment hereunder (whether based on contract or tort or upon any federal, state or local statute, including but not limited to claims asserted under the Age Discrimination in Employment Act, Title VII of the Civil Rights Act of 1964, as amended, any state Fair Employment Practices Act and/or the Americans with Disability Act) shall, at the election of either you or the Company, be submitted to JAMS for resolution in arbitration in accordance with the rules and procedures of JAMS. Either party shall make such election by delivering written notice thereof to the other party at any time (but not later than 45 days after such party receives notice of the commencement of any administrative or regulatory proceeding or the filing of any lawsuit relating to any such dispute or controversy) and thereupon any such dispute or controversy shall be resolved only in accordance with the provisions of this Section 10.7. Any such proceedings shall take place in New York, New York before a single arbitrator (rather than a panel of arbitrators), pursuant to any streamlined or expedited (rather than a comprehensive) arbitration process, before a non-judicial (rather than a judicial) arbitrator, and in accordance with an arbitration process which, in the judgment of such arbitrator, shall have the effect of reasonably limiting or reducing the cost of such arbitration. The resolution of any such dispute or controversy by the arbitrator appointed in accordance
22
with the procedures of JAMS shall be final and binding. Judgment upon the award rendered by such arbitrator may be entered in any court having jurisdiction thereof, and the parties consent to the jurisdiction of the New York courts for this purpose. If you shall be the prevailing party in such arbitration, the Company shall promptly pay, upon your demand, all reasonable legal fees, court costs and other reasonable costs and expenses incurred by you in any legal action seeking to enforce the award in any court.
10.8. Beneficiaries. Whenever this Agreement provides for any payment to your estate, such payment may be made instead to such beneficiary or beneficiaries as you may designate by written notice to the Company. You shall have the right to revoke any such designation and to redesignate a beneficiary or beneficiaries by written notice to the Company (and to any applicable insurance company) to such effect.
10.9. No Conflict. You represent and warrant to the Company that this Agreement is legal, valid and binding upon you and the execution of this Agreement and the performance of your obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which you are a party (including, without limitation, any other employment agreement). The Company represents and warrants to you that this Agreement is legal, valid and binding upon the Company and the execution of this Agreement and the performance of the Companys obligations hereunder does not and will not constitute a breach of, or conflict with the terms or provisions of, any agreement or understanding to which the Company is a party.
10.10. Withholding Taxes. Payments made to you pursuant to this Agreement shall be subject to withholding and social security taxes and other ordinary and customary payroll deductions.
10.11. Offset. Except as provided in Sections 5.1 (Disability Payments), 10.6.3.3 (Incentive Compensation Forfeiture Offset) and the Companys general right to offset any payments received by you under this Agreement by any disability benefits you may receive during the Term or any Severance Period from Workers Compensation insurance, Social Security disability, and short- and long-term disability insurance benefits maintained by the Company, neither you nor the Company shall have any right to offset any amounts owed by one party hereunder against amounts owed or claimed to be owed to such party, whether pursuant to this Agreement or otherwise, and you and the Company shall make all the payments provided for in this Agreement in a timely manner.
23
10.12. Severability. If any provision of this Agreement shall be held invalid, the remainder of this Agreement shall not be affected thereby; provided however, that the parties shall negotiate in good faith with respect to equitable modification of the provision or application thereof held to be invalid. To the extent that it may effectively do so under applicable law, each party hereby waives any provision of law which renders any provision of this Agreement invalid, illegal or unenforceable in any respect.
10.13. Survival.
10.13.1. Sections 3.6 (Indemnification), 4.5 (Payments), 4.6 (Code §280G), 8 (Restrictive Covenants), 9 (Notices) and 10 (General) shall survive any termination of your employment by the Company for cause or your voluntary resignation pursuant to Section 4.1 and the expiration of the Term pursuant to Section 4.3.
10.13.2. Sections 3.6, 4.4 (Release), 4.5, 4.6, 7.2 (Benefits After Term), 8, 9 and 10 shall survive any termination of your employment by the Company without cause, by you for Good Reason, or due to your disability pursuant to Sections 4.2 or 5.
10.13.3. If your employment continues after the Term on an at-will basis, Sections 4.3(a), 4.3(b) and 4.3(c) shall survive the termination of this Agreement.
10.14. Key Definitions. The following terms are defined in this Agreement in the places indicated:
280G Payments Section 4.6
Additional Compensation Plans Section 3.5
affiliate Section 4.2.2.1
Award Gain Section 10.6.3.2
Base Salary Section 3.1
Bonus Section 3.2
cause Section 4.1.1
Change In Control Section 4.2.3
CIC Agreement Section 4.2.3
Competitive Entity Section 8.4
Covered Business Section 8.4
Disability Date Section 5.1
Disability Period Section 5.1
Forfeiture Period Section 10.6.3.1
Good Reason Section 4.2
24
Limited Vicarious Liability Section 4.1.1
Long-term Incentive Awards Section 3.3
Non-compete Period Section 8.4
Other Employment Section 4.2.2.1
Severance Period Section 4.2.2
Target Bonus Section 3.2
Term Section 1
Work Product Section 8.5
10.15. Compliance With Section 409A. This Agreement is intended to comply with Section 409A of the Code and will be interpreted, administered and operated in a manner consistent with that intent. Notwithstanding anything herein to the contrary, if at the time of your separation from service with the Company you are a specified employee as defined in Section 409A of the Code (and the regulations thereunder) and any payments or benefits otherwise payable hereunder as a result of such separation from service are subject to Section 409A of the Code, then the Company will defer the commencement of the payment of any such payments or benefits hereunder (without any reduction in such payments or benefits ultimately paid or provided to you) until the date that is six months following your separation from service with the Company (or the earliest date as is permitted under Section 409A of the Code), and the Company will pay any such delayed amounts in a lump sum at such time. If any other payments of money or other benefits due to you hereunder could cause the application of an accelerated or additional tax under Section 409A of the Code, such payments or other benefits shall be deferred if deferral will make such payment or other benefits compliant under Section 409A of the Code, or otherwise such payment or other benefits shall be restructured, to the extent possible, in a manner, determined by the Company, that does not cause such an accelerated or additional tax. To the extent any reimbursements or in-kind benefits due to you under this Agreement constitute deferred compensation under Section 409A of the Code, any such reimbursements or in-kind benefits shall be paid to you in a manner consistent with Treas. Reg. Section 1.409A-3(i)(1)(iv). Each payment made under this Agreement shall be designated as a separate payment within the meaning of Section 409A of the Code. References to termination of employment and similar terms used in this Agreement are intended to refer to separation from service within the meaning of Section 409A of the Code to the extent necessary to comply with Section 409A of the Code. The Company shall consult with you in good faith regarding the implementation of the provisions of this Section 10.15; provided that neither the Company nor any of its employees or representatives shall have any liability to you with respect to thereto.
25
10.16. Entire Agreement. This Agreement sets forth the entire agreement and understanding of the parties relating to the subject matter of this Agreement and supersedes all prior agreements, arrangements and understandings, written or oral, between the parties, including, but not limited to, your prior employment agreement with the Company dated March 1, 2010.
[Remainder of page intentionally left blank.]
26
IN WITNESS WHEREOF, the parties have duly executed this Agreement as of the date first above written.
TIME WARNER CABLE INC. |
||||||
By: |
/s/ Tomas Mathews | |||||
TOMAS MATHEWS |
||||||
EXECUTIVE VICE PRESIDENT, HUMAN RESOURCES |
||||||
Agreed to by: |
||||||
EXECUTIVE |
||||||
/s/ Peter Stern |
||||||
PETER STERN |
27
ANNEX A
RELEASE
Pursuant to the terms of the Employment Agreement made as of [Date], between TIME WARNER CABLE INC. (the Company) and the undersigned (the Agreement), and in consideration of the payments made to me and other benefits to be received by me pursuant thereto, I, [Name], being of lawful age, do hereby release and forever discharge the Company and any successors, subsidiaries, affiliates, related entities, predecessors, merged entities and parent entities and their respective officers, directors, shareholders, employees, benefit plans, benefit plan administrators, trustees, and fiduciaries, agents, attorneys, insurers, representatives, affiliates, successors and assigns from any and all actions, causes of action, claims, or demands for general, special or punitive damages, attorneys fees, expenses, or other compensation or damages (collectively, Claims), which in any way relate to or arise out of my employment with the Company or any of its subsidiaries or the termination of such employment, which I may now or hereafter have under any federal, state or local law, regulation or order, including without limitation, Claims under the Age Discrimination in Employment Act (with the exception of Claims that may arise after the date I sign this Release), Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act, the Fair Labor Standards Act, the Family and Medical Leave Act, the Worker Adjustment Retraining and Notification Act, the Employee Retirement Income Security Act, and any state or local human rights law (each as amended through and including the date of this Release); as well as any other claims under state contract or tort law, including, but not limited to, claims for employment discrimination, wrongful termination, constructive termination, violation of public policy, breach of any express or implied contract, breach of any implied covenant, fraud, intentional or negligent misrepresentation, emotional distress, slander, and invasion of privacy; provided, however, that the execution of this Release shall not prevent the undersigned from bringing a lawsuit against the Company to enforce its obligations under the Agreement; provided further, that the execution of this Release does not release any rights I may have against the Company for indemnification under the Agreement or any other agreement, plan or arrangement.
I acknowledge that I have been given at least twenty-one (21) days from the day I received a copy of this Release to sign it and that I have been advised to consult an attorney. I understand that I have the right to revoke my consent to this Release for seven (7) days following my signing. This Release shall not become effective or enforceable until the expiration of the seven-day period following the date it is signed by me.
I ALSO ACKNOWLEDGE THAT BY SIGNING THIS RELEASE I MAY BE GIVING UP VALUABLE LEGAL RIGHTS AND THAT I HAVE BEEN ADVISED TO CONSULT A LAWYER BEFORE SIGNING. I further state that I have read this document and the Agreement referred to herein, that I know the contents of both and that I have executed the same as my own free act.
WITNESS my hand this XXX day of XXXXX
[DO NOT SIGN OR DATE SAMPLE COPY ONLY]
28
Exhibit 10.3
January 13, 2014
Mr. Peter Stern
60 Columbus Circle
New York, NY 10023
Dear Peter:
Pursuant to Section 1 of the Employment Agreement effective as of November 1, 2011 between you and Time Warner Cable Inc. (the Agreement), the Agreement expires on October 31, 2014. This letter offers to amend the Agreement to extend the term through December 31, 2016. All other provisions of the Agreement will remain unchanged and in full force and effect.
Please indicate your acceptance of the foregoing extension of the term of your Agreement by executing this letter no later than January 31, 2014 and returning it immediately via interoffice mail to: Brad Donnelly, HR-Executive Compensation, Charlotte, NC.
Sincerely, | ||
TIME WARNER CABLE INC. | ||
By: |
/s/ Rob Marcus | |
Rob Marcus | ||
Chairman and Chief Executive Officer |
AGREED AND ACCEPTED: | ||
Peter Stern | ||
/s/ Peter Stern | ||
Date: |
January 15, 2014 |
EXHIBIT 31.1
CERTIFICATIONS
I, Robert D. Marcus, certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Time Warner Cable Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2015 |
By: |
/s/ Robert D. Marcus |
||||||
Name: |
Robert D. Marcus |
|||||||
Title: |
Chief Executive Officer |
|||||||
(Principal Executive Officer) Time Warner Cable Inc. |
EXHIBIT 31.2
CERTIFICATIONS
I, Arthur T. Minson, Jr., certify that:
1. | I have reviewed this quarterly report on Form 10-Q of Time Warner Cable Inc.; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrants other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter (the registrants fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and
5. | The registrants other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
Date: April 30, 2015 |
By: |
/s/ Arthur T. Minson, Jr. |
||||||
Name: |
Arthur T. Minson, Jr. |
|||||||
Title: |
Executive Vice President and Chief Financial Officer (Principal Financial Officer) Time Warner Cable Inc. |
EXHIBIT 32
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Time Warner Cable Inc., a Delaware corporation (the Company), for the quarter ended March 31, 2015, as filed with the Securities and Exchange Commission on the date hereof (the Report), each of the undersigned officers of the Company certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his or her respective knowledge:
1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
2. | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 30, 2015 |
/s/ Robert D. Marcus |
|||
Robert D. Marcus |
||||
Chief Executive Officer (Principal Executive Officer) Time Warner Cable Inc. |
||||
Date: April 30, 2015 |
/s/ Arthur T. Minson, Jr. |
|||
Arthur T. Minson, Jr. |
||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) Time Warner Cable Inc. |
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