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TIME WARNER CABLE INC (TWC) filed Quarterly Report for the period ended 2008-06-30.
Time Warner Cable Inc. is the second-largest cable operator in the U.S. and an industry leader in developing and launching innovative video data and voice services. They deliver their services to customers over technologically-advanced well-clustered cable systems that pass approximately 26 million homes. Time Warner Cable Inc. has a market cap of $9.42 billion; its shares were traded at around $28.92 with a P/E ratio of 7.8 and P/S ratio of 0.5.
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During the three and six months ended June 30, 2008, the Company incurred pretax costs related to the Separation of $47 million and $49 million, respectively, including direct transaction costs (e.g., legal and professional fees) of $10 million and $12 million, respectively (which have been reflected in other income, net on the Company’s consolidated statement of operations), and financing costs of $37 million for both periods. For the three and six months ended June 30, 2008, after considering the interest income received on the proceeds from the 2008 Bond Offering (as defined below), financing costs included $6 million in net interest expense on the $5.0 billion of debt securities issued in such offering and $31 million of debt issuance costs related to the portion of the upfront loan fees for the 2008 Bridge Facility that were expensed during the second quarter of 2008 due to the reduction of commitments under such facility as a result of the 2008 Bond Offering. The Company expects to incur additional costs related to the Separation during the remainder of 2008 associated with additional financing and direct transaction costs.
On June 16, 2008, TWC filed a shelf registration statement on Form S-3 (the “Shelf Registration Statement”) with the Securities and Exchange Commission (the “SEC”) that allows TWC to offer and sell from time to time senior and subordinated debt securities and debt warrants. On June 19, 2008, TWC issued $5.0 billion in aggregate principal amount of senior unsecured notes and debentures under the Shelf Registration Statement (the “2008 Bond Offering”), consisting of $1.5 billion principal amount of 6.20% notes due 2013, $2.0 billion principal amount of 6.75% notes due 2018 and $1.5 billion principal amount of 7.30% debentures due 2038. The Company expects to use the net proceeds of $4.963 billion from this issuance to finance, in part, the Special Dividend. If the Separation is not consummated and the Special Dividend is not paid, the Company will use the net proceeds from the issuance of the debt securities for general corporate purposes, including repayment of indebtedness.
In addition to the debt securities issued in the 2008 Bond Offering described above, on June 30, 2008, the Company entered into a credit agreement with certain financial institutions for a senior unsecured term loan facility in an aggregate principal amount of $9.0 billion with an initial maturity date that is 364 days after the borrowing date (the “2008 Bridge Facility”) in order to finance, in part, the Special Dividend. As a result of the 2008 Bond Offering, immediately after the credit agreement was executed, the amount of the commitments of the lenders under the 2008 Bridge Facility was reduced to $4.040 billion. The Company may elect to extend the maturity date of the loans outstanding under the 2008 Bridge Facility for an additional year. TWC may not borrow any amounts under the 2008 Bridge Facility unless and until the Special Dividend is declared in connection with the Separation.
In May 2008, Time Warner (as lender) committed to lend TWC (as borrower) up to an aggregate principal amount of $3.5 billion under a two-year senior unsecured supplemental term loan facility (the “Supplemental Facility”). TWC may borrow under the Supplemental Facility at the final maturity of the 2008 Bridge Facility to repay amounts then outstanding under the 2008 Bridge Facility, if any. As a result of the 2008 Bond Offering, Time Warner’s original commitment was reduced by $980 million to $2.520 billion.
In May 2008, TWC, Intel Corporation, Google Inc., Comcast Corporation (together with its subsidiaries, “Comcast”) and Bright House Networks LLC entered into agreements to collectively invest $3.2 billion in a wireless communications joint venture (the “Sprint/Clearwire Joint Venture”), which is expected to be formed by Sprint Nextel Corporation (“Sprint”) and Clearwire Corporation (“Clearwire”). TWC’s share of such investment is expected to be approximately $550 million, which it expects to fund with cash on hand, borrowings under the Cable Revolving Facility (as defined below), its commercial paper program or a combination thereof. Once formed, the Sprint/Clearwire Joint Venture will be focused on deploying the first nationwide fourth generation wireless network to provide mobile broadband services to wholesale and retail customers. In connection with its investment in the Sprint/Clearwire Joint Venture, TWC has entered into a wholesale agreement with Sprint that allows TWC to offer wireless services utilizing Sprint’s 2G/3G network. Upon closing, TWC also expects to enter into a wholesale agreement with the Sprint/Clearwire Joint Venture that would allow TWC to offer wireless services utilizing the Sprint/Clearwire Joint Venture’s broadband wireless network. The closing of these transactions, which is expected to occur by the end of the first half of 2009, is subject to customary regulatory review and approvals. There can be no assurance that the formation of the Sprint/Clearwire Joint Venture will be completed, or, if completed, that the Sprint/Clearwire Joint Venture would successfully deploy a nationwide mobile broadband network. If completed, the Company’s investment in the Sprint/Clearwire Joint Venture would be accounted for under the equity method of accounting and the Company expects that the Sprint/Clearwire Joint Venture would incur losses in its early periods of operation.
In June 2008, the Company entered into an agreement to sell a group of small cable systems, serving approximately 80,000 basic video subscribers and approximately 120,000 revenue generating units as of June 30, 2008, located in areas outside of the Company’s core geographic clusters. The sale price is approximately $53 million, subject to certain adjustments. The Company expects the sale of these cable systems will close during the fourth quarter of 2008, subject to obtaining customary regulatory approvals. The Company does not expect that the sale of these systems will have a material impact on the Company’s future financial results; however, as a result of a probable loss on the sale of these systems, the Company recorded a pretax impairment loss of $45 million during the second quarter of 2008.
