SPECTRUM MANAGEMENT HOLDING COMPANY, LLC - FORM 8-K - EX-99.2

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8-K - 8-K - SPECTRUM MANAGEMENT HOLDING COMPANY, LLC	d665721d8k.htm
EX-99.1 - EX-99.1 - SPECTRUM MANAGEMENT HOLDING COMPANY, LLC	d665721dex991.htm

Fourth-Quarter & Full-Year 2013

Earnings Summary

January 30, 2014

Caution Concerning Forward-Looking Statements

and Non-GAAP Financial Measures

Today’s presentation does not constitute an offer to buy or solicitation of an offer to sell any securities. This presentation

includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995

and Time Warner Cable intends that all such statements be covered by the safe harbor provisions of the federal securities

laws. Statements herein regarding future financial and operating results and any other statements about future

expectations constitute “forward-looking statements.” These forward-looking statements may be identified by words such

as “believe,” “expects,” “anticipates,” “projects,” “intends,” “should,” “estimates” or similar expressions. These

statements are based on management’s current expectations or beliefs, and are subject to uncertainty and changes in

circumstances. Actual results may vary materially from those expressed or implied by the statements herein due to

changes in economic, business, competitive, technological, strategic and/or regulatory factors, and other factors affecting

the operations of Time Warner Cable. More detailed information about these factors may be found in filings by Time

Warner Cable with the SEC, including its most recent Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

Time Warner Cable is under no obligation to, and expressly disclaims any such obligation to, update or alter its forward-

looking statements, whether as a result of new information, future events, or otherwise.

This presentation includes information regarding the historical financial performance through December 31, 2013 of Time

Warner Cable and its expectations regarding future performance, including historical financial performance as reflected in

non-GAAP financial measures such as OIBDA (Operating Income before Depreciation and Amortization), Adjusted OIBDA,

Adjusted OIBDA less capital expenditures, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS

and Free Cash Flow. Please note that schedules setting out the reconciliation of historical non-GAAP financial measures to

Operating Income, net income attributable to TWC shareholders and cash provided by operating activities or other most

directly comparable GAAP financial measures, as applicable, are included in the trending schedules posted on the Time

Warner Cable company website at www.twc.com/investors and, as applicable, also are included in the Company’s

earnings release for the quarter ended December 31, 2013, which can also be accessed from the Company’s website.

Legends

ADDITIONAL INFORMATION

CERTAIN INFORMATION REGARDING PARTICIPANTS

Time Warner Cable and certain of its directors and executive officers may be deemed to be participants in a solicitation under

the rules of the SEC. Security holders may obtain information regarding the names, affiliations and interests of Time Warner

Cable’s directors and executive officers in Time Warner Cable’s Annual Report on Form 10-K for the year ended December 31,

2012,

which

was

filed

with

the

SEC

February

15,

2013,

and

its

proxy

statement

for

the

2013

Annual

Meeting,

which

was

filed with the SEC on April 4, 2013. These documents can be obtained free of charge from the sources indicated above.

Additional information regarding the interests of these participants in any proxy solicitation and a description of their direct

and indirect interests, by security holdings or otherwise, will also be included in any proxy statement and other relevant

materials to be filed with the SEC if and when they become available.

Time Warner Cable expects to file a proxy statement with the U.S. Securities and Exchange Commission (“SEC”) and to

provide any definitive proxy statement to its security holders. INVESTORS AND SECURITY HOLDERS OF TIME WARNER

CABLE ARE URGED TO READ THIS DOCUMENT AND ANY OTHER DOCUMENTS FILED BY TIME WARNER CABLE WITH THE SEC

CAREFULLY IN THEIR ENTIRETY IF AND WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT

INFORMATION. Investors and security holders will be able to obtain free copies of the definitive proxy statement (when

available) and any other documents filed with the SEC by Time Warner Cable through the web site maintained by the SEC

at http://www.sec.gov.

Quarterly Highlights

Refer to Endnotes on slide 15 of definitions.

Financial Highlights

Full-year revenue grew 3.4% year over year, driven primarily by growth of 21.6% in business services revenue and

14.4% in residential high-speed data revenue.

Operational Highlights

Residential subscriber performance improved sequentially each month during Q4 and continued to improve in January.

TWC now offers residential high-speed data speeds of 100 Mbps in several cities and regions, including Los Angeles,

Kansas City and Hawaii. Residential wideband high-speed data subscribers (which includes the 30, 50, 75 and 100

Mbps tiers) more than doubled year over year to 910,000 subscribers.

TWC’s first generation cloud-based guide with an advanced VOD portal was installed on 2.8 million set-top boxes at

year end.

As of December 31, 2013, TWC’s video customers had access to 183 HD channels on average.

Time Warner Cable ended 2013 with 44,000 IntelligentHome customers, an increase of 32,000 subscribers during the

year. IntelligentHome is now offered virtually throughout the Company’s footprint.

During the fourth quarter, TWC added 16,000 commercial buildings to its network, ending the year with connectivity to 860,000

commercial buildings.

On December 31, 2013, the Company acquired DukeNet – a regional fiber optic network company primarily serving the

Carolinas – for $572 million in cash (including the repayment of debt), net of cash acquired and capital leases assumed. With

the acquisition of DukeNet, TWC ended 2013 with 14,000 cell towers installed on its network.

The

TWC

app

now

available

the

Amazon

Kindle

Fire™

platform,

addition

Apple™

iOS

and

Android™

tablets

and

smartphones,

Roku™

Streaming

Players,

Samsung™

Smart

TVs

and

Xbox

360™

video

game

consoles,

and

Mac

computers

via

www.twctv.com.

TWC

features

300

linear

channels

and

over

4,000

hours

VOD

programming

all

TWC

app

platforms

the

home

and

live

channels

and

1,200

hours

VOD

content

from

networks

outside

the

home.

Fourth-quarter

2013

average

monthly

revenue

per

residential

customer

relationship

ARPU

(1)

grew

2.2%

$106.03,

which

the

highest

rate

growth

since

the

first

quarter

2012.

Residential

high-speed

data

ARPU

(1)

increased

12.4% to $46.21.

During

2013,

total

return

capital

(6)

increased

28%

$3.3

billion.

Since

inception

the

repurchase

program

November

2010

through

December

31,

2013,

TWC

has

repurchased

over

25%

its

outstanding

for

$7.5

billion at an average price of $82.51 per share.

TWC

expanded

its

WiFi

initiative,

finishing

2013

with

30,000

TWC

WiFi

access

points.

Through

the

Cable

Wi-Fi

network, most TWC high-speed data customers now have access to more than 200,000 hotspots across the U.S.

Selected Financial Results

Refer to slides 15-17 for definitions, additional information and reconciliations of non-GAAP financial measures.

(in millions, except per share data)

Revenue

5,577

5,485

1.7%

22,120

21,386

734

3.4%

Adjusted OIBDA

(2)

2,026

1,994

1.6%

7,980

7,824

156

2.0%

Operating Income

1,173

1,169

0.3%

4,580

4,445

135

3.0%

Diluted EPS

(4)

1.89

1.68

0.21

12.5%

6.70

6.90

(0.20)

(2.9%)

Adjusted Diluted EPS

(3)

1.82

1.57

0.25

15.9%

6.61

5.75

0.86

15.0%

Cash provided by operating activities

1,599

1,410

189

13.4%

5,753

5,525

228

4.1%

Capital expenditures

827

904

(77)

(8.5%)

3,198

3,095

103

3.3%

Free Cash Flow

(5)

773

587

186

31.7%

2,606

2,552

2.1%

Return of capital

(6)

868

742

126

17.0%

3,284

2,564

720

28.1%

4th Quarter

Full Year

Change

2013

2012

2013

2012

Residential Customer Relationships and Video, High-speed

Data and Voice Subscriber Trends All Improved Sequentially

Throughout the Quarter and January

Residential Video Subscribers

Residential Customer Relationships

Residential HSD Subscribers

Residential Voice Subscribers

Net Additions (Declines)

(in Thousands)

Total Revenue

Revenue

($ in Millions)

Total Customer Relationship ARPU

(1)

Refer to Endnotes on slide 15 for definitions.

Residential, Business and Advertising Revenue

Business Services

($ in Millions)

$616

$515

Advertising

($ in Millions)

Residential Services

($ in Millions)

$20

$17

$4,580

$4,577

$313

$278

Adjusted OIBDA

(2)

& Operating Income

Adjusted OIBDA

(2)

($ in Millions)

Adjusted OIBDA Margin

(7)

36.4%

4Q12

4Q13

36.3%

Operating Income

($ in Millions)

Operating Income Margin

(8)

21.3%

4Q12

4Q13

21.0%

Operating Expenses

($ in Millions)

$3,551

$3,491

Refer to slides 15-17 for definitions, additional information and reconciliations of non-GAAP financial measures.

*All Other Operating Expense consists of Marketing, Voice, Video Franchise and Other Fees, High-speed Data, Bad Debt and Other Expenses.

Operating Expenses consist of Cost of Revenue and Selling, General & Administrative Expenses.

Diluted Earnings Per Share

Diluted EPS

(4)

Adjusted Diluted EPS

(3)

Refer to slides 15-17 for definitions, additional information and reconciliations of non-GAAP financial measures.

305.6

4Q12

4Q13

285.2

Average Diluted Common Shares

Outstanding

(in Millions)

•

Net income attributable to TWC

shareholders increased 5.3%

•

Average diluted common shares

declined 6.7%

•

Adjusted net income attributable to

TWC shareholders increased 8.6%

•

Average diluted common shares

declined 6.7%

Capital Expenditures

Refer to Endnotes on slide 15 for definitions.

Three-Month Capital Expenditures

($ in Millions)

Three-Month

Capital

Intensity

(9)

Total

16.5%

4Q12

4Q13

14.8%

Twelve-Month Capital Expenditures

($ in Millions)

Twelve-Month

Capital

Intensity

(9)

Total

14.5%

2012

2013

14.5%

$827

$904

$3,198

$3,095

Free Cash Flow

(5)

($ in Millions)

Twelve Months Ended December 31,

Refer to slides 15-17 for definitions, additional information and reconciliations of non-GAAP financial measures.

•

Growth in Free Cash Flow driven by lower

pension plan contributions and higher

Adjusted OIBDA, partially offset by higher

net income tax payments, increased capital

expenditures and a change in working

capital requirements.

Stimulus Program Impact on Cash Taxes

Actual Historical Impact

Expected to drive approximately $175m decrease in cash flow generation in 2014

Projected Impact*

($ in Millions)

*Realized impact will depend on actual capital expenditures. This analysis includes the impact from enacted stimulus laws to date and assumes capital

spending excluding acquisitions remains around the 2014 expected level of $3.7 to $3.8 billion during each of those years.

Return of Capital

(6)

2Q12

4Q11

1Q12

3Q12

4Q12

($ in Millions)

(5)

1Q13

3Q13

2Q13

4Q13

$391

$718

$824

$423

$587

$661

$732

$440

$773

$154

$179

$177

$173

$171

$195

$191

$187

$185

$366

$353

$440

$500

$571

$660

$638

$545

$683

Free Cash Flow

Dividends

Share Repurchases

Refer to slides 15-17 for definitions, additional information and reconciliations of non-GAAP financial measures.

Endnotes

(1) ARPU represents average monthly revenue per unit. Residential customer relationship ARPU represents

residential services revenue divided by the corresponding average residential customer relationships for the

period. Total customer relationship ARPU represents total revenue divided by the corresponding average

customer relationships for the period. Residential high-speed data ARPU represents residential high-speed data

revenue divided by the corresponding average residential high-speed data subscribers for that period.

(2) Adjusted OIBDA is defined as Operating Income before Depreciation and Amortization 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 Company’s separation from Time Warner Inc.

(3) Adjusted Diluted EPS means net income per diluted common share attributable to TWC common shareholders

excluding the impact, if any, of noncash impairments of goodwill, intangible and fixed assets and investments;

gains and losses on asset sales; merger-related and restructuring costs; changes in the Company’s equity award

reimbursement obligation to Time Warner Inc.; certain changes to income tax provision; and costs associated with

certain equity awards granted to employees to offset value lost as a result of the Company’s separation from Time

Warner Inc.; as well as the impact of taxes and noncontrolling interests on the above items.

(4) Diluted earnings per share (EPS) is defined as net income per diluted common share attributable to TWC

common shareholders.

(5) Free Cash Flow is defined as cash provided by operating activities (as defined under GAAP) excluding the

impact, if any, of cash provided or used by discontinued operations, plus (i) any income taxes paid on investment

sales and (ii) any excess tax benefit from equity-based compensation, less (i) capital expenditures, (ii) cash paid for

other intangible assets (excluding those associated with business combinations), (iii) partnership distributions to

third parties and (iv) principal payments on capital leases.

(6) Return of capital represents dividends paid and share repurchases and does not reflect the fees, commissions

or other costs associated with the stock repurchase program.

(7) Adjusted OIBDA margin is defined as Adjusted OIBDA as a percentage of total revenue.

(8) Operating Income margin is defined as Operating Income as a percentage of total revenue.

(9) Capital intensity is defined as capital expenditures as a percentage of revenue.

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, Adjusted net income attributable to TWC shareholders, Adjusted Diluted EPS and Free Cash Flow, which the

Company defines as follows:

paid on investment sales and (ii) any excess tax benefit from equity-based compensation, less (i) capital expenditures, (ii) cash paid for other intangible assets (excluding those associated with

business combinations), (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 Company’s business because they eliminate the effects of (i) considerable amounts of

noncash depreciation and amortization and (ii) items not within the control of the Company’s operations managers (such as income tax 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 Company’s annual incentive compensation programs. Adjusted net income attributable to TWC shareholders and Adjusted Diluted EPS are considered important indicators of the

operational strength of the Company as these measures eliminate amounts that do not reflect the fundamental performance of the Company. The Company utilizes Adjusted Diluted EPS, among

other measures, to evaluate its performance both on an absolute basis and relative to its peers and the broader market. Management believes that Free Cash Flow is an important indicator of the

Company’s ability to generate cash, reduce net debt, pay dividends, repurchase common stock and make strategic investments, after the payment of cash taxes, interest and other cash items. In

addition, all of these measures are commonly used by analysts, investors and others in evaluating the Company’s 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

revenue. To compensate for such limitations, management evaluates performance through Adjusted OIBDA less capital expenditures and Free Cash Flow, which reflect capital expenditure

decisions, and net income 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

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 results of the Company’s equity investments and other non-operational income or expense. Additionally, Adjusted net income attributable to TWC

shareholders and Adjusted Diluted EPS do not reflect certain charges that affect the operating results of the Company and they involve judgment as to whether items affect fundamental operating

performance. Management compensates for these limitations by using other analytics such as a review of net income 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 non-GAAP measures should be considered in addition to, not as substitutes for, the Company’s Operating Income, net income 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.

Adjusted

OIBDA

less

capital

expenditures

means

Adjusted

OIBDA

minus

capital

expenditures.

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 (i) any income taxes

OIBDA (Operating Income before Depreciation and Amortization)

means Operating Income before depreciation of tangible assets and amortization of intangible assets.

Adjusted

net

income

attributable

TWC

shareholders

means

net

income

attributable

TWC

shareholders

(as

defined

under

GAAP)

excluding

the

impact,

any,

noncash

impairments of

goodwill,

intangible

and

fixed

assets

and

investments;

gains

and

losses

asset

sales;

merger-related

and

restructuring

costs;

changes

the

Company’s

equity

award

reimbursement

obligation

Time

Warner;

certain

changes

income

tax

provision;

and

costs

associated

with

certain

equity

awards

granted

employees

offset

value

lost

result

the

Separation; as

well

the

impact

taxes

the

above

items.

Similarly,

Adjusted

Diluted

EPS

means

net

income

per

diluted

common

attributable

TWC

common

shareholders

excluding

the

above

items.

Adjusted

OIBDA

means

OIBDA

excluding

the

impact,

any,

noncash

impairments

goodwill,

intangible

and

fixed

assets;

gains

and

losses

asset

sales;

merger-related

and

restructuring

costs;

costs

associated

with

certain

equity

awards

granted

employees

offset

value

lost

result

TWC’s

separation

from

Time

Warner

Inc.

March

12,

2009

(the

“Separation”);

and, in

2014,

expenses

associated

with

unsolicited

proposals

acquire

the

Company.

2013

2012

2013

2012

Adjusted OIBDA

2,026

1,994

7,980

7,824

Merger-related and restructuring costs

(38)

(17)

(119)

(115)

Depreciation

(784)

(777)

(3,155)

(3,154)

Amortization

(31)

(126)

(110)

Operating Income

1,173

1,169

4,580

4,445

Total revenue

5,577

5,485

22,120

21,386

Adjusted OIBDA as a percentage of revenue

36.3%

36.4%

36.1%

36.6%

Operating Income as a percentage of revenue

21.0%

21.3%

20.7%

20.8%

Net income per diluted common share attributable to TWC common shareholders

1.89

1.68

6.70

6.90

Merger-related and restructuring costs

0.09

0.03

0.25

0.22

Asset impairments

0.02

Gains on asset sales

(1.11)

Loss on equity award reimbursement obligation to Time Warner Inc.

0.01

0.02

Certain changes to income tax provision

(0.16)

(0.15)

(0.36)

(0.30)

Adjusted Diluted EPS

1.82

1.57

6.61

5.75

Items Affecting Comparability:

Merger-related and restructuring costs

(38)

(17)

(119)

(115)

Asset impairments

(12)

Gains on asset sales

494

Loss on equity award reimbursement obligation to Time Warner Inc.

(2)

(4)

(10)

(9)

Total of above items affecting comparability

(40)

(21)

(129)

358

Income tax impact of above items

(95)

Certain changes to income tax provision

104

Impact of items affecting comparability on net income attributable to TWC shareholders

358

Net income attributable to TWC shareholders

540

513

1,954

2,155

Impact of items affecting comparability on net income attributable to TWC shareholders

(20)

(34)

(25)

(358)

Adjusted net income attributable to TWC shareholders

520

479

1,929

1,797

Cash provided by operating activities

1,599

1,410

5,753

5,525

Add:

Income taxes paid on investment sales

Excess tax benefit from equity-based compensation

Less:

Capital expenditures

(827)

(904)

(3,198)

(3,095)

Cash paid for other intangible assets

(10)

(40)

(37)

Other

(1)

(2)

(6)

Free Cash Flow

773

587

2,606

2,552

2011

Cash provided by operating activities

1,344

1,383

1,537

1,195

1,410

1,394

1,551

1,209

1,599

Add:

Income taxes paid on investment sales

Excess tax benefit from equity-based compensation

Less:

Capital expenditures

(942)

(706)

(712)

(773)

(904)

(770)

(827)

(774)

(827)

Cash paid for other intangible assets

(11)

(9)

(7)

(11)

(10)

(12)

(8)

(10)

Other

(2)

(1)

Free Cash Flow

391

718

824

423

587

661

732

440

773

Reconciliation of Cash provided by operating activities to Free Cash Flow (in millions):

2012

2013

4th Quarter

Full Year

Reconciliation of Net income attributable to TWC shareholders to Adjusted net income attributable to TWC shareholders (in millions):

Reconciliation of Net income per diluted common share attributable to TWC common shareholders to Adjusted Diluted EPS:

Reconciliation of Adjusted OIBDA to Operating Income (in millions):

Adjusted OIBDA and Operating Income as percentages of revenue (in millions):

Reconciliation of Cash provided by operating activities to Free Cash Flow (in millions):

Reconciliations

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