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8-K - FORM 8-K - SPECTRUM MANAGEMENT HOLDING COMPANY, LLC | g23114e8vk.htm |
Exhibit 99.1
TIME WARNER CABLE REPORTS
2010 FIRST-QUARTER RESULTS
2010 FIRST-QUARTER RESULTS
NEW YORK, NY, April 29, 2010 Time Warner Cable Inc. (NYSE: TWC) today reported financial
results for its first quarter ended March 31, 2010.
Time Warner Cable Chief Executive Officer Glenn Britt said: Were off to a great start in 2010.
Through product enhancements, more effective marketing and cost management, we drove profitable
first-quarter growth even in the face of more intense competition.
We also paid our first regular dividend and reduced our leverage to our target on the timetable we
promised more than a year ago. Our accomplishments in the first quarter demonstrate our commitment
to providing innovative and increasingly valuable services to our customers, generating free cash
flow and making smart capital allocation decisions to provide attractive returns for our
shareholders.
FINANCIAL RESULTS
Revenues for the first quarter of 2010 increased 5.4% from the first quarter of 2009 to $4.6
billion. Subscription revenues grew 4.9% year-over-year to $4.4 billion, driven by a 4.1% increase
in residential subscription revenues and a 19.2% increase in commercial subscription revenues.
Advertising revenues increased 19.3% to $173 million. Residential subscription revenue growth was
driven by increases in video, high-speed data and voice revenues. The growth in residential video
revenues was the result of video price increases, the continued growth of digital video
subscribers, and an increase in DVR service revenues, partially offset by a year-over-year decline
in video subscribers. Residential high-speed data revenues increased as a result of growth in
high-speed data subscribers and, to a lesser extent, price increases. The growth in residential
voice revenues was driven by an increase in Digital Phone subscribers, partially offset by a
decrease in average monthly revenues per Digital Phone subscriber. Commercial subscription revenue
growth was due primarily to increases in Business Class Phone and commercial high-speed data
subscribers and an increase in cell tower backhaul and Metro Ethernet revenues. Advertising
revenue growth was driven by year-over-year increases in a wide range of categories, most
significantly automotive.
(in millions; unaudited) | 1st Quarter | |||||||||||
2010 | 2009 | Change | ||||||||||
Subscription revenues: |
||||||||||||
Video |
$ | 2,740 | $ | 2,667 | 2.7 | % | ||||||
High-speed data |
1,193 | 1,101 | 8.4 | % | ||||||||
Voice |
493 | 451 | 9.3 | % | ||||||||
Total Subscription revenues |
4,426 | 4,219 | 4.9 | % | ||||||||
Advertising revenues |
173 | 145 | 19.3 | % | ||||||||
Total revenues |
$ | 4,599 | $ | 4,364 | 5.4 | % | ||||||
Adjusted Operating Income before Depreciation and Amortization (Adjusted OIBDA) rose 10.9%
over the first quarter of 2009 to $1.7 billion. The increase was driven by revenue growth,
partially offset by a 2.5% increase in operating expenses. In particular, video programming
expenses grew 5.1% to $1.1 billion, marketing expense was up 7.9% to $151 million, and voice costs
increased 6.6% to $162 million.
These increases were partially offset by a decrease in bad debt
expense, which declined 60.5% to $17 million.
Video programming expenses increased due to contractual rate
increases and incremental retransmission consent expense offset, in part, by a decline in video and
premium channel subscriptions.
Bad debt expense declined primarily due to improvements in
collection efforts and the quality of residential receivables.
Operating Income was up 18.7% over the first quarter of 2009 to
$850 million primarily as a result of higher Adjusted OIBDA and a decline in restructuring costs,
partially offset by higher depreciation expense.
Adjusted
OIBDA for the first quarter of 2010 excludes the expenses noted in the table below.
(in millions; unaudited) | 1st Quarter | ||||||||||||
2010 | 2009 | Change | |||||||||||
Adjusted OIBDA(a) |
$ | 1,671 | $ | 1,507 | 10.9 | % | |||||||
Adjusted OIBDA margin(b) |
36.3 | % | 34.5 | % | |||||||||
Separation-related make-up
equity award costs |
(2 | ) | | NM | |||||||||
Restructuring costs |
(11 | ) | (43 | ) | (74.4 | %) | |||||||
OIBDA(a) |
1,658 | 1,464 | 13.3 | % | |||||||||
Depreciation |
(743 | ) | (691 | ) | 7.5 | % | |||||||
Amortization |
(65 | ) | (57 | ) | 14.0 | % | |||||||
Operating Income |
$ | 850 | $ | 716 | 18.7 | % | |||||||
NM Not meaningful. (a) Refer to Note 2 to the accompanying consolidated financial statements for a definition of OIBDA and Adjusted OIBDA. (b) Adjusted OIBDA margin is defined as Adjusted OIBDA as a percentage of total revenues. |
|||||||||||||
Net Income Attributable to TWC Shareholders was $214 million, or $0.60 per basic and diluted
common share, for the first quarter of 2010. Note 1 to the accompanying consolidated financial
statements details certain items affecting the comparability of net income attributable to TWC
shareholders for the first quarter of 2010 to that for the first quarter of 2009, which reduced
basic and diluted earnings per share by $0.22 in the first quarter of 2010 and by $0.27 in the
prior year quarter. Excluding these items, first-quarter 2010 net income attributable to TWC
shareholders increased compared to the prior year period, primarily reflecting higher Operating
Income, partly offset by an increase in interest expense related to the debt incurred to fund the
Companys $10.9 billion special cash dividend in March 2009. |
|||||||||||||
(in millions, except per share data; unaudited) | 1st Quarter | ||||||||||||
2010 | 2009 | Change | |||||||||||
Net income attributable to TWC shareholders |
$ | 214 | $ | 164 | 30.5 | % | |||||||
Net income per common share attributable to TWC common shareholders: |
|||||||||||||
Basic |
$ | 0.60 | $ | 0.48 | 25.0 | % | |||||||
Diluted |
$ | 0.60 | $ | 0.48 | 25.0 | % | |||||||
Adjusted OIBDA less Capital Expenditures for the first three months of 2010 totaled $935
million, a 26.7% increase over the first three months of 2009, due to higher Adjusted OIBDA and
lower capital expenditures. Capital Expenditures were $736 million in the first three months of
2010, a 4.3% decrease from the first three months of 2009, largely reflecting lower
residential capital spending, partly offset by higher commercial capital spending. The decline in
residential capital spending was primarily attributable to lower spending on customer premise
equipment and support capital, partially offset by higher scalable infrastructure spending.
2
(in millions; unaudited) | 1st Quarter | |||||||||||
2010 | 2009 | Change | ||||||||||
Adjusted OIBDA |
$ | 1,671 | $ | 1,507 | 10.9 | % | ||||||
Capital expenditures |
(736 | ) | (769 | ) | (4.3 | %) | ||||||
Adjusted OIBDA less Capital expenditures |
$ | 935 | $ | 738 | 26.7 | % | ||||||
Free Cash Flow for the first three months of 2010 increased 77.7% to $652 million from $367
million in the first three months of 2009, due mainly to higher cash provided by operating
activities. Cash Provided by Operating Activities for the first three months of 2010 was $1.4
billion, a 21.5% increase from $1.1 billion in the first three months of 2009. This increase was
related primarily to higher Adjusted OIBDA, a change in working capital requirements, and lower
pension plan contributions, offset partly by a decrease in cash tax refunds. |
||||||||||||
(in millions; unaudited) | 1st Quarter | |||||||||||
2010 | 2009 | Change | ||||||||||
Cash provided by operating activities |
$ | 1,386 | $ | 1,141 | 21.5 | % | ||||||
Add: Excess tax benefit from exercise of stock options |
5 | | NM | |||||||||
Less: |
||||||||||||
Capital expenditures |
(736 | ) | (769 | ) | (4.3 | %) | ||||||
Cash paid for other intangible assets |
(3 | ) | (5 | ) | (40.0 | %) | ||||||
Free Cash Flow(a) |
$ | 652 | $ | 367 | 77.7 | % |
NM Not meaningful.
(a) Refer to Note 2 to the accompanying consolidated financial statements for a definition of Free Cash Flow.
(a) Refer to Note 2 to the accompanying consolidated financial statements for a definition of Free Cash Flow.
Net Debt and Mandatorily Redeemable Preferred Equity totaled $21.1 billion as of March 31,
2010, down $501 million since December 31, 2009, driven by Free Cash Flow offset, in part, by the
quarterly cash dividend payment.
(in millions; unaudited) | 3/31/10 | 12/31/09 | ||||||
Long-term debt |
$ | 21,138 | $ | 22,331 | ||||
Debt due within one year |
5 | | ||||||
Total debt |
21,143 | 22,331 | ||||||
Cash and equivalents |
(361 | ) | (1,048 | ) | ||||
Net debt(a) |
20,782 | 21,283 | ||||||
Mandatorily redeemable preferred equity |
300 | 300 | ||||||
Net debt and mandatorily redeemable preferred equity |
$ | 21,082 | $ | 21,583 |
(a) Net debt is
defined as total debt less cash and equivalents.
3
SUBSCRIBER METRICS
Primary Service Units (PSU) increased by 276,000 to 26.6 million. Double and Triple
Play Subscribers increased by 82,000 and 73,000 in the first quarter, respectively, and bundled
subscribers totaled 8.5 million, or 58.2% of total customer relationships as of March 31, 2010.
(in thousands) | Net | |||||||||||
12/31/09 | Change | 3/31/10 | ||||||||||
Video subscribers |
12,859 | (42 | ) | 12,817 | ||||||||
Residential high-speed data subscribers |
8,994 | 212 | 9,206 | |||||||||
Commercial high-speed data subscribers |
295 | 9 | 304 | |||||||||
Residential Digital Phone subscribers |
4,153 | 86 | 4,239 | |||||||||
Commercial Digital Phone subscribers |
67 | 11 | 78 | |||||||||
Primary service units |
26,368 | 276 | 26,644 | |||||||||
Digital video subscribers |
8,866 | 102 | 8,968 | |||||||||
Revenue generating units |
35,234 | 378 | 35,612 | |||||||||
Single play subscribers |
6,224 | (109 | ) | 6,115 | ||||||||
Double play subscribers |
4,900 | 82 | 4,982 | |||||||||
Triple play subscribers |
3,448 | 73 | 3,521 | |||||||||
Customer relationships |
14,572 | 46 | 14,618 |
Refer to the Trending Schedules posted on the Companys website at
www.timewarnercable.com/investors for definitions related to the Companys subscriber metrics.
Non-GAAP Financial Measures
The Company refers to certain financial measures that are not presented in accordance with U.S.
generally accepted accounting principles (GAAP), including Operating Income (Loss) before
Depreciation and Amortization, Adjusted OIBDA, Adjusted OIBDA less Capital Expenditures and Free
Cash Flow. Refer to Note 2 to the accompanying consolidated financial statements for a discussion
of the Companys use of non-GAAP financial measures.
About Time Warner Cable
Time Warner Cable is the second-largest cable operator in the U.S., with technologically advanced,
well-clustered systems located mainly in five geographic areas New York State (including New York
City), the Carolinas, Ohio, southern California (including Los Angeles) and Texas. Time Warner
Cable serves more than 14 million customers who subscribe to one or more of its video, high-speed
data and voice services. Time Warner Cable Business Class offers a suite of phone, Internet,
Ethernet and cable television services to businesses of all sizes. Time Warner Cable Media Sales,
the advertising arm of Time Warner Cable, offers national, regional and local companies innovative
advertising solutions that are targeted and affordable. More information about the services of Time
Warner Cable is available at www.timewarnercable.com, www.twcbc.com and
www.twcmediasales.com.
Information on Conference Call
Time Warner Cables earnings conference call can be heard live at 8:30 am ET on Thursday, April 29,
2010. To listen to the call, visit www.timewarnercable.com/investors.
Caution Concerning Forward-Looking Statements
This document includes certain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on managements current
expectations or beliefs, and are subject to uncertainty and changes in circumstances. Actual
results may vary materially from those expressed or implied by the statements herein due to changes
in economic, business, competitive,
4
technological, strategic and/or regulatory factors, and other
factors affecting the operations of Time Warner Cable Inc. More detailed information about these
factors may be found in filings by Time Warner Cable Inc. with the Securities and Exchange
Commission, including its most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q.
Time Warner Cable is under no obligation to, and expressly disclaims any such obligation to,
update or alter its forward-looking statements, whether as a result of new information, future
events, or otherwise.
Contacts: |
||
Corporate Communications
|
Investor Relations | |
Alex Dudley (212) 364-8229
|
Tom Robey (212) 364-8218 | |
Justin Venech (212) 364-8242
|
Laraine Mancini (212) 364-8202 |
# # #
5
TIME WARNER CABLE INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
CONSOLIDATED BALANCE SHEET
(Unaudited)
March 31, | December 31, | |||||||
2010 | 2009 | |||||||
(in millions) | ||||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and equivalents |
$ | 361 | $ | 1,048 | ||||
Receivables, less allowances of $68 million and $74 million as of March 31, 2010 and December 31, 2009, respectively |
548 | 663 | ||||||
Deferred income tax assets |
139 | 139 | ||||||
Other current assets |
239 | 252 | ||||||
Total current assets |
1,287 | 2,102 | ||||||
Investments |
961 | 975 | ||||||
Property, plant and equipment, net |
13,721 | 13,919 | ||||||
Intangible assets subject to amortization, net |
212 | 274 | ||||||
Intangible assets not subject to amortization |
24,092 | 24,092 | ||||||
Goodwill |
2,112 | 2,111 | ||||||
Other assets |
241 | 221 | ||||||
Total assets |
$ | 42,626 | $ | 43,694 | ||||
LIABILITIES AND EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 279 | $ | 478 | ||||
Deferred revenue and subscriber-related liabilities |
178 | 170 | ||||||
Accrued programming expense |
779 | 738 | ||||||
Other current liabilities |
1,595 | 1,572 | ||||||
Total current liabilities |
2,831 | 2,958 | ||||||
Long-term debt |
21,138 | 22,331 | ||||||
Mandatorily redeemable preferred equity issued by a subsidiary |
300 | 300 | ||||||
Deferred income tax liabilities, net |
9,043 | 8,957 | ||||||
Other liabilities |
416 | 459 | ||||||
TWC shareholders equity: |
||||||||
Common stock, $0.01 par value, 354.0 million and 352.5 million shares issued and outstanding as of March 31, 2010
and December 31, 2009, respectively |
4 | 4 | ||||||
Paid-in capital |
9,802 | 9,813 | ||||||
Accumulated other comprehensive loss, net |
(314 | ) | (319 | ) | ||||
Accumulated deficit |
(599 | ) | (813 | ) | ||||
Total TWC shareholders equity |
8,893 | 8,685 | ||||||
Noncontrolling interests |
5 | 4 | ||||||
Total equity |
8,898 | 8,689 | ||||||
Total liabilities and equity |
$ | 42,626 | $ | 43,694 | ||||
See accompanying notes.
Certain reclassifications have been made to the prior year financial information to conform
to the current period presentation.
6
TIME WARNER CABLE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
(in millions, except per | ||||||||
share data) | ||||||||
Revenues: |
||||||||
Subscription: |
||||||||
Video |
$ | 2,740 | $ | 2,667 | ||||
High-speed data |
1,193 | 1,101 | ||||||
Voice |
493 | 451 | ||||||
Total subscription |
4,426 | 4,219 | ||||||
Advertising |
173 | 145 | ||||||
Total revenues |
4,599 | 4,364 | ||||||
Costs and expenses: |
||||||||
Costs of revenues(a) |
2,195 | 2,132 | ||||||
Selling, general and administrative(a) |
735 | 725 | ||||||
Depreciation |
743 | 691 | ||||||
Amortization |
65 | 57 | ||||||
Restructuring costs |
11 | 43 | ||||||
Total costs and expenses |
3,749 | 3,648 | ||||||
Operating Income |
850 | 716 | ||||||
Interest expense, net |
(347 | ) | (290 | ) | ||||
Other expense, net |
(15 | ) | (51 | ) | ||||
Income before income taxes |
488 | 375 | ||||||
Income tax provision |
(273 | ) | (191 | ) | ||||
Net income |
215 | 184 | ||||||
Less: Net income attributable to noncontrolling interests |
(1 | ) | (20 | ) | ||||
Net income attributable to TWC shareholders |
$ | 214 | $ | 164 | ||||
Net income per common share attributable to TWC common shareholders: |
||||||||
Basic |
$ | 0.60 | $ | 0.48 | ||||
Diluted |
$ | 0.60 | $ | 0.48 | ||||
Average common shares outstanding: |
||||||||
Basic |
352.9 | 339.0 | ||||||
Diluted |
357.0 | 339.6 | ||||||
Cash dividend declared per share of common stock |
$ | 0.40 | $ | | ||||
Special cash dividend declared and paid per share of common stock |
$ | | $ | 30.81 | ||||
(a) | Costs of revenues and selling, general and administrative expenses exclude depreciation. |
See accompanying notes.
Certain reclassifications have been made to the prior year financial information to
conform to the current period presentation.
7
TIME WARNER CABLE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended | ||||||||
March 31, | ||||||||
2010 | 2009 | |||||||
(in millions) | ||||||||
OPERATING ACTIVITIES |
||||||||
Net income |
$ | 215 | $ | 184 | ||||
Adjustments for noncash and nonoperating items: |
||||||||
Depreciation |
743 | 691 | ||||||
Amortization |
65 | 57 | ||||||
Loss from equity investments, net of cash distributions |
26 | 17 | ||||||
Deferred income taxes |
137 | 145 | ||||||
Equity-based compensation |
36 | 35 | ||||||
Changes in operating assets and liabilities, net of acquisitions and dispositions: |
||||||||
Receivables |
113 | 173 | ||||||
Accounts payable and other liabilities |
55 | (112 | ) | |||||
Other changes |
(4 | ) | (49 | ) | ||||
Cash provided by operating activities |
1,386 | 1,141 | ||||||
INVESTING ACTIVITIES |
||||||||
Acquisitions and investments, net of cash acquired and distributions received |
17 | 9 | ||||||
Capital expenditures |
(736 | ) | (769 | ) | ||||
Other investing activities |
2 | 1 | ||||||
Cash used by investing activities |
(717 | ) | (759 | ) | ||||
FINANCING ACTIVITIES |
||||||||
Borrowings (repayments), net(a) |
(1,256 | ) | | |||||
Borrowings(b) |
| 8,614 | ||||||
Repayments(b) |
| (3,182 | ) | |||||
Debt issuance costs |
| (11 | ) | |||||
Proceeds from exercise of stock options |
39 | | ||||||
Dividends paid |
(144 | ) | | |||||
Payment of special cash dividend |
| (10,856 | ) | |||||
Other financing activities |
5 | | ||||||
Cash used by financing activities |
(1,356 | ) | (5,435 | ) | ||||
Decrease in cash and equivalents |
(687 | ) | (5,053 | ) | ||||
Cash and equivalents at beginning of period |
1,048 | 5,449 | ||||||
Cash and equivalents at end of period |
$ | 361 | $ | 396 | ||||
(a) | Borrowings (repayments), net, reflects borrowings under TWCs commercial paper program with original maturities of three months or less, net of repayments of such borrowings. | |
(b) | Amounts represent borrowings and repayments related to debt instruments with original maturities greater than three months. |
See accompanying notes.
Certain reclassifications have been made to the prior year financial information to conform
to the current period presentation.
8
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. ITEMS AFFECTING COMPARABILITY
The following items affected the comparability of net income attributable to TWC shareholders
for the three months ended March 31, 2010 and 2009:
(in millions, except per share data) | 1st Quarter | |||||||
2010 | 2009 | |||||||
Restructuring costs |
$ | (11 | ) | $ | (43 | ) | ||
Equity award reimbursement obligation to Time Warner(a) |
4 | (2 | ) | |||||
Separation-related make-up equity award costs(b) |
(2 | ) | | |||||
Amortization adjustment(c) |
| 11 | ||||||
Separation-related costs(d) |
| (40 | ) | |||||
Investment in The Reserve Funds Primary Fund |
| (10 | ) | |||||
Pretax impact |
(9 | ) | (84 | ) | ||||
Income tax impact of the above items |
3 | 28 | ||||||
Income tax impact of expired Time Warner stock options(e) |
(72 | ) | | |||||
Income tax impact of certain state tax law changes in California |
| (38 | ) | |||||
Portion of above items impacting income attributable to noncontrolling interests |
| 1 | ||||||
After-tax impact |
$ | (78 | ) | $ | (93 | ) | ||
Impact per basic and diluted common share |
$ | (0.22 | ) | $ | (0.27 | ) | ||
(a) | Pursuant to an agreement with Time Warner Inc. (Time Warner), the Company is obligated to reimburse Time Warner for the cost of certain Time Warner equity awards held by TWC employees upon exercise or vesting of such awards. Amounts represent the change in the reimbursement obligation, which fluctuates primarily with the fair value of the underlying equity awards and is recorded in earnings in the period of change. | |
(b) | As a result of the Companys separation (the Separation) from Time Warner, pursuant to their terms, Time Warner equity awards held by TWC employees were forfeited and/or experienced a reduction in value as of the date of the Separation. Amounts represent costs associated with TWC stock options and restricted stock units granted to TWC employees during the second quarter of 2009 to offset these forfeitures and/or reduced values. | |
(c) | Amount represents adjustments to reduce excess amortization recorded in prior years. | |
(d) | Amount consists of direct transaction costs (e.g., legal and professional fees) and debt issuance costs ($27 million and $13 million, respectively, for the three months ended March 31, 2009). | |
(e) | As a result of the Separation on March 12, 2009, TWC employees who held stock options under Time Warner equity plans were treated as if their employment with Time Warner had been terminated without cause at the time of the Separation. In most cases, this treatment resulted in shortened exercise periods, generally one year from the date of Separation, for vested Time Warner stock options held by TWC employees. During the first quarter of 2010, TWC recorded a noncash charge of $72 million related to the reversal of previously recognized deferred income tax benefits, primarily as a result of the expiration, on March 12, 2010, of these Time Warner stock options. |
2. USE OF NON-GAAP FINANCIAL MEASURES
In discussing its performance, the Company may use certain measures that are not calculated
and presented in accordance with U.S. generally accepted accounting principles (GAAP). These
measures include OIBDA, Adjusted OIBDA, Adjusted OIBDA less Capital Expenditures and Free Cash
Flow, which the Company defines as follows:
| OIBDA (Operating Income (Loss) before Depreciation and Amortization) means Operating Income (Loss) before depreciation of tangible assets and amortization of intangible assets. | ||
| Adjusted OIBDA means OIBDA excluding the impact, if any, of noncash impairments of goodwill, intangible and fixed assets; gains and losses on asset sales; merger-related and restructuring costs; and costs associated with certain equity awards granted to employees to offset value lost as a result of the Companys separation from Time Warner Inc. | ||
| Adjusted OIBDA less Capital Expenditures means Adjusted OIBDA minus capital expenditures. |
9
TIME WARNER CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(Continued)
(Unaudited)
| Free Cash Flow means cash provided by operating activities (as defined under GAAP) excluding the impact, if any, of cash provided or used by discontinued operations, plus any excess tax benefits from the exercise of stock options, less (i) capital expenditures, (ii) cash paid for other intangible assets, (iii) partnership distributions to third parties and (iv) principal payments on capital leases. |
Management uses OIBDA and Adjusted OIBDA, among other measures, in evaluating the performance
of the Companys business because they eliminate the effects of (1) considerable amounts of noncash
depreciation and amortization and (2) items not within the control of the Companys operations
managers (such as net income (loss) attributable to noncontrolling interests, income tax benefit
(provision), other income (expense), net, and interest expense, net). Adjusted OIBDA further
eliminates the effects of certain noncash items identified in the definition of Adjusted OIBDA
above. Adjusted OIBDA less Capital Expenditures also allows management to evaluate performance
including the effect of capital spending decisions. Adjusted OIBDA and Adjusted OIBDA less Capital
Expenditures are also significant performance measures used in the Companys annual incentive
compensation programs. Management believes that Free Cash Flow is an important indicator of the
Companys liquidity after the payment of cash taxes, interest and other cash items, including its
ability to reduce net debt, pay dividends and make strategic investments. In addition, all of
these measures are commonly used by analysts, investors and others in evaluating the Companys
performance and liquidity.
These measures have inherent limitations. For example, OIBDA and Adjusted OIBDA do not
reflect capital expenditures or the periodic costs of certain capitalized assets used in generating
revenues. To compensate for such limitations, management evaluates performance through Adjusted
OIBDA less Capital Expenditures and Free Cash Flow, which reflect capital expenditures, and net
income (loss) attributable to TWC shareholders, which reflects the periodic costs of capitalized
assets. Adjusted OIBDA and Adjusted OIBDA less Capital Expenditures do not reflect any of the
items noted as exclusions in the definition of Adjusted OIBDA above. To compensate for these
limitations, management evaluates performance through OIBDA and net income (loss) attributable to
TWC shareholders, which do reflect such items. OIBDA, Adjusted OIBDA and Adjusted OIBDA less
Capital Expenditures also fail to reflect the significant costs borne by the Company for income
taxes and debt servicing costs, the share of OIBDA, Adjusted OIBDA and Adjusted OIBDA less Capital
Expenditures attributable to noncontrolling interests, the results of the Companys equity
investments or other non-operational income or expense. Management compensates for these
limitations by using other analytics such as a review of net income (loss) attributable to TWC
shareholders. Free Cash Flow, a liquidity measure, does not reflect payments made in connection
with investments and acquisitions, which reduce liquidity. To compensate for this limitation,
management evaluates such investments and acquisitions through other measures such as return on
investment analyses.
These measures should be considered in addition to, not as substitutes for, the Companys
Operating Income (Loss), net income (loss) attributable to TWC shareholders and various cash flow
measures (e.g., cash provided by operating activities), as well as other measures of financial
performance and liquidity reported in accordance with GAAP, and may not be comparable to similarly
titled measures used by other companies.
10