<PAGE>
THIS PAPER DOCUMENT IS BEING SUBMITTED PURSUANT TO RULE 901 (d) OF
REGULATION S-T
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
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: 33-43948
TWI CABLE INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 59-1353813
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
75 ROCKEFELLER PLAZA, NEW YORK, NY 10019
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
212-484-8000
(REGISTRANT'S 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 X NO
--------- ---------
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES OF
COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE:
100 SHARES OF COMMON STOCK, NO PAR VALUE PER SHARE, WERE ISSUED AND OUTSTANDING
AS OF NOVEMBER 12, 1996
THE REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTION (H) (1) (a)
AND (b) OF FORM 10-Q AND IS FILING THIS FORM WITH THE REDUCED DISCLOSURE FORMAT.
1
<PAGE>
TWI CABLE INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated balance sheets at September 30, 1996 and December 31, 1995...................... 3
Consolidated statements of operations for the three and nine months ended
September 30, 1996 and 1995................................................................ 4
Consolidated statements of changes in shareholder's deficit for the nine
months ended September 30, 1996............................................................ 5
Consolidated statements of cash flows for the nine months ended
September 30, 1996 and 1995................................................................ 6
Notes to consolidated financial statements................................................... 7
Item 2. Management's Discussion and Analysis of Results of Operations......................... 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings..................................................................... 14
Item 6. Exhibits and Reports on Form 8-K...................................................... 14
</TABLE>
2
<PAGE>
TWI CABLE INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
--------------- ---------------
ASSETS (thousands, except share amounts)
<S> <C> <C>
Current assets
Cash and equivalents................................ $ 16,350 $ 7,649
Receivables, less allowances of $1,838 and $1,236... 21,215 23,227
Income tax refunds receivable from Time Warner...... 25,910 --
Other current assets................................ 2,845 3,780
---------- ----------
Total current assets................................ 66,320 34,656
Investments and loans............................... 1,485 23,507
Property, plant and equipment, net.................. 403,258 367,470
Cable television franchises, net.................... 707,410 285,860
Other intangibles, net.............................. 269,180 248,546
---------- ----------
Total assets........................................ $1,447,653 $ 960,039
========== ==========
LIABILITIES AND SHAREHOLDER'S DEFICIT
Current liabilities
Accounts payable.................................... $ 14,781 $ 12,599
Accrued expenses.................................... 66,308 68,100
Subscriber advance payments and deposits............ 11,356 14,842
Liability under employment arrangements............. -- 93,185
---------- ----------
Total current liabilities........................... 92,445 188,726
Note payable to TW/KBLCOM Inc....................... 1,500,000 --
Other long-term debt................................ 500,000 1,481,406
Deferred income taxes............................... 55,820 17,732
Other noncurrent liabilities........................ 1,096 --
Shareholder's deficit
Common stock, no par value, 200 shares
authorized, 100 issued and outstanding at
September 30, 1996; $1 par value, 80,000 shares
issued and outstanding at December 31, 1995,
stated at redemption value of $1.25.............. -- 100
Paid-in capital..................................... 125,805 32,565
Accumulated deficit................................. (827,513) (760,490)
---------- ----------
Total shareholder's deficit......................... (701,708) (727,825)
---------- ----------
Total liabilities and shareholder's deficit......... $1,447,653 $ 960,039
========== ==========
</TABLE>
See accompanying notes.
3
<PAGE>
TWI CABLE INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30, Ended September 30,
--------------------- ---------------------
1996 1995 1996 1995
--------- ---------- ---------- ---------
(thousands)
<S> <C> <C> <C> <C>
Revenues.................................. $135,015 $108,717 $399,690 $318,779
-------- -------- --------- --------
Costs and expenses:
Operating and programming (a)........... 47,235 35,476 137,303 102,811
Selling, general and
administrative(a)..................... 21,869 21,086 68,234 66,188
Depreciation and amortization........... 40,107 34,828 120,605 104,635
Long-term stock and deferred
compensation.......................... -- 2,500 -- 7,500
-------- -------- --------- --------
Total costs and expenses.............. 109,211 93,890 326,142 281,134
-------- -------- --------- --------
Operating income.......................... 25,804 14,827 73,548 37,645
Interest expense, net(b).................. (36,606) (30,968) (111,856) (92,818)
Other income (expense).................... (2,157) (362) (2,001) 18,923
-------- -------- --------- --------
Loss before income tax benefit
and extraordinary item.................. (12,959) (16,503) (40,309) (36,250)
Income tax benefit........................ 5,890 615 14,123 1,348
-------- -------- --------- --------
Loss before extraordinary item............ (7,069) (15,888) (26,186) (34,902)
Extraordinary loss on retirement of
debt (less applicable income tax
benefit of $6,493)...................... -- -- (9,658) --
-------- -------- --------- --------
Net loss.................................. $ (7,069) $(15,888) $ (35,844) $(34,902)
======== ======== ========= ========
(a) Includes the following expenses
resulting from transactions with
affiliates (Note 6)................... $ 9,475 $ -- $ 32,289 $ --
(b) Includes interest expense with
affiliates (Note 4)................... 24,424 -- 72,089 --
</TABLE>
See accompanying notes.
4
<PAGE>
TWI CABLE INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S DEFICIT
(Unaudited)
<TABLE>
<CAPTION>
Total
Common Paid-In Accumulated Shareholder's
Stock Capital Deficit Deficit
------ -------- ------------ --------------
(thousands)
<S> <C> <C> <C> <C>
Balance at December 31, 1995.. $ 100 $ 32,565 $(760,490) $(727,825)
Capital contributions......... -- 93,140 -- 93,140
Change in capital structure
resulting from merger
with Time Warner............ (100) 100 -- --
Distributions................. -- -- (31,179) (31,179)
Net loss...................... -- -- (35,844) (35,844)
----- -------- ---------- ----------
Balance at September 30, 1996 $ -- $125,805 $(827,513) $(701,708)
===== ======== ========= ==========
</TABLE>
See accompanying notes.
5
<PAGE>
TWI CABLE INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
-----------------------
1996 1995
----------- ---------
<S> <C> <C>
(thousands)
OPERATING ACTIVITIES
Net loss.................................................................... $ (35,844) $ (34,902)
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt.................................... 9,658 --
Depreciation and amortization............................................... 120,605 104,635
Equity in loss of investee.................................................. 386 --
Deferred income tax benefit................................................. -- (1,755)
Changes in operating assets and liabilities, net of effect of acquisitions.. (121,949) (9,413)
----------- ---------
Cash provided (used) by operating activities................................ (27,144) 58,565
----------- ---------
INVESTING ACTIVITIES
Capital expenditures........................................................ (61,111) (53,210)
Investment and acquisitions, net of cash acquired........................... (189,496) (16,073)
----------- ---------
Cash used by investing activities........................................... (250,607) (69,283)
----------- ---------
FINANCING ACTIVITIES
Borrowings.................................................................. 1,535,000 169,320
Debt repayments............................................................. (1,247,784) (153,439)
Distributions............................................................... (764) --
Redemption of cumulative redeemable preferred stock,
including dividends........................................................ -- (876)
----------- ---------
Cash provided by financing activities....................................... 286,452 15,005
----------- ---------
INCREASE IN CASH AND EQUIVALENTS............................................ 8,701 4,287
CASH AND EQUIVALENTS AT BEGINNING OF YEAR................................... 7,649 3,698
----------- ---------
CASH AND EQUIVALENTS AT END OF PERIOD....................................... $ 16,350 $ 7,985
=========== =========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Interest paid............................................................... $ 118,893 $ 105,314
Income taxes paid........................................................... 1,632 407
</TABLE>
See accompanying notes.
6
<PAGE>
TWI CABLE INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
TWI Cable Inc. (the "Company", formerly known as Cablevision Industries
Corporation and Subsidiaries ("CVI")) owns and operates cable television
systems. On October 1, 1996, Time Warner Companies, Inc. ("Time Warner",
formerly Time Warner Inc.) completed a reorganization amongst certain of its
wholly owned cable subsidiaries (the "TWI Cable Reorganization") whereby (a)
Time Warner contributed all of the capital stock of each of (i) TW/KBLCOM
Inc.("KBLCOM"), a wholly owned subsidiary of Time Warner owning and operating
the net assets acquired in Time Warner's 1995 acquisition of KBLCOM Incorporated
(formerly TWI Cable Inc.) and (ii)Summit Communications Group, Inc. ("Summit",
which was acquired by Time Warner in 1995) to the Company and (b)CVI was renamed
TWI Cable Inc. In connection with this reorganization, the Company assumed (a)
approximately $1.5 billion of KBLCOM's indebtedness under a five-year, revolving
credit agreement (the "Credit Agreement") which was assumed in cancellation of
the Company's $1.5 billion note payable to KBLCOM and (b) $1.3 billion of
indebtedness due to Time Warner. References herein to the "Company" refer to CVI
prior to October 1, 1996 and TWI Cable Inc. thereafter.
The TWI Cable Reorganization is not reflected in the accompanying consolidated
financial statements, but will be accounted for as a merger of entities under
common control (similar to the pooling-of-interests method of accounting for
business combinations) in the fourth quarter of 1996.
These consolidated financial statements are unaudited, but in the opinion of
management, reflect all adjustments (consisting of a normal recurring nature)
considered necessary to present fairly the financial position, the results of
operations and the cash flows for the periods presented in conformity with
generally accepted accounting principles applicable to interim periods. Certain
reclassifications have been made to the 1995 financial statements to conform
with the 1996 presentation. The consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto contained in the Company's Annual Report filed on Form 10-K for the year
ended December 31, 1995.
Effective January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" ("FAS 121"), which established standards
for the recognition and measurement of impairment losses on long-lived assets
and certain intangible assets. The adoption of FAS 121 did not have a material
effect on the Company's financial statements.
2. MERGERS AND ACQUISITIONS
On January 4, 1996, the Company merged with a wholly owned subsidiary of Time
Warner (the "CVI Merger"). As a result of the CVI Merger the Company became a
direct, wholly owned subsidiary of Time Warner. Concurrent with the CVI Merger,
Cablevision Management Corporation of Philadelphia ("CMP") merged with a wholly
owned subsidiary of Time Warner and became a direct, wholly owned subsidiary of
Time Warner (the "CMP Merger"). Thereafter, Time Warner contributed the capital
stock of CMP to the Company. Immediately following the CVI Merger, (a)
Cablevision Industries of Middle Florida, Inc. ("CIMF") merged into the Company
(the "CIMF Merger") and (b) the Company and certain of its subsidiaries
purchased the entire equity interests or all of the assets (collectively, the
"Gerry Purchase") of each of Cablevision Industries of Tennessee L.P. ("CITLP"),
Cablevision Industries Limited Partnership ("CILP"), Cablevision Industries of
Saratoga Associates ("CISA"), Cablevision of Fairhaven/Acushnet ("CFA") and
Cablevision Industries of Florida, Inc. ("CIF") and, together with CMP, CIMF,
CITLP, CILP, CISA and
7
<PAGE>
CFA, the "Gerry Companies." The CMP Merger, the CIMF Merger and the Gerry
Purchase are referred to herein as the "Gerry Acquisition." The CVI Merger and
the Gerry Acquisition are referred to herein as the "Time Warner Transactions."
The CVI Merger did not result in the "push down" of Time Warner's accounting
basis due to the Company's public debt which remains outstanding (Note 4).
Therefore, the Company's accounting basis of net assets did not change as a
result of the CVI Merger. As a result of the Gerry Acquisition, the Company
has acquired cable television systems serving approximately 247,000 subscribers
in exchange for 2,467,294 shares of Time Warner common stock and the assumption
or incurrence of approximately $431 million of debt. The Company has accounted
for the Gerry Acquisition under the purchase method of accounting for business
combinations and has, accordingly, preliminarily allocated the estimated total
acquisition cost of $304 million to the underlying net assets in proportion to
their respective fair values as follows: cable television franchises - $459
million; goodwill - $33 million; other current and noncurrent assets - $103
million; long-term debt-$220 million; deferred income taxes - $33 million; and
other current liabilities - $38 million.
As a result of the Gerry Acquisition, the ownership of the Gerry Companies has
been consolidated within the Company. A majority of the Company's cable systems
are managed by Time Warner Entertainment Company, L.P. ("TWE"- see Note 3).
The accompanying consolidated statement of operations includes the operating
results of the Gerry Companies from the closing date of the Gerry Acquisition.
On a pro forma basis, giving effect to the TWI Cable Reorganization and the Time
Warner Transactions as if these transactions had occurred at January 1, 1995,
the Company would have reported the following approximate amounts for the three
and nine month periods ended September 30, 1996 and 1995, respectively: revenues
of $228 million and $679 million compared to $213 million and $637 million,
operating income of $18 million and $47 million compared to $8 million and $16
million, interest expense of $66 million and $200 million compared to $64
million and $204 million, depreciation and amortization expense of $89 million
and $268 million compared to $91 million and $284 million, and loss before
extradorinary item of $21 million and $75 million compared to $36 million and
$101 million. On a proforma basis, giving effect to the TWI Cable Reorganization
as if it occurred on September 30, 1996, the Company would have reported total
assets of $6.825 billion, long-term debt of $3.431 billion, and shareholder's
equity of $602 million at September 30, 1996. The Time Warner Transactions are
already reflected in the balance sheet as of September 30, 1996.
In the fourth quarter of 1995, the Company recorded a non-recurring charge of
$25.7 million to reduce the carrying value of certain non-operating assets,
("Distributed Assets") to their aggregate net realizable value of $30.4 million.
The Distributed Assets, which included property, plant and equipment and
investments with net realizable values of $22.7 million and $7.7 million,
respectively, were distributed to the Company's majority stockholder in January
1996 in contemplation of the Time Warner Transactions. In addition, the Company
made a cash distribution of $764,000 to the Company's minority stockholders in
January 1996 representing their pro rata share of the net realizable value of
the Distributed Assets.
3. INVESTMENTS AND LOANS
As of September 30, 1996 and December 31, 1995, investments and loans consisted
of the following:
September 30, December 31,
1996 1995
------------- -------------
(thousands)
Loans to affiliates $ -- $ 4,439
Investment in CVI-KKR Joint Venture -- 591
Other investments and loans 1,485 18,477
------ -------
$1.485 $23,507
====== =======
8
<PAGE>
All loans to affiliates were repaid on January 3, 1996 in connection with the
Time Warner Transactions. In addition, an agreement reached on December 31, 1995
with an existing partner to purchase the remaining partnership ownership
interest for a purchase price of $21.4 million, was satisfied by forgiving $15.4
million of loans made to the partner. The remaining balance of $6.1 million was
paid on January 3, 1996.
In September 1992, the Company finalized various agreements with Kohlberg,
Kravis, Roberts & Co. ("KKR") under which a joint venture ("CVI-KKR Joint
Venture") was formed to acquire certain cable television systems. The Company
made a $6.3 million equity investment in the CVI-KKR Joint Venture, representing
its share of the capital required for an acquisition. The Company's investment
in, and the results of operations of, the CVI-KKR Joint Venture is accounted for
under the equity method of accounting. Since the January 4, 1996 consummation
of the Time Warner Transactions, the CVI-KKR Joint Venture has been managed by
KKR.
Prior to the Time Warner Transactions, the Company earned management fees for
services provided to cable television systems owned or controlled by the
majority stockholder of the Company and to a cable television system owned by
the CVI-KKR Joint Venture. These management fees were included in revenues and
amounted to approximately $4.2 million for the nine months ended September 30,
1995. After the Time Warner Transactions were consummated, all such management
fee arrangements were terminated.
Prior to the Time Warner Transactions, other investments and loans included the
deferral of accrued management fees, accrued interest on loans to affiliates,
and other advances to affiliates, as well as investments in unrelated cable
programming entities. At September 30, 1996, other investments and loans were
comprised of investments in other cable television and programming entities
4. LONG-TERM DEBT
As of September 30, 1996 and December 31, 1995, long-term debt consisted of:
September 30, December 31,
1996 1995
------------- -------------
Parent (thousands)
------
9.25% senior debentures $ 200,000 $ 200,000
10.75% senior notes 300,000 300,000
Line of credit (8.5% interest rate) -- 3,000
Revolving note (6.31%) 1,500,000 --
Subsidiaries
------------
9.86% senior notes -- 66,000
10.36% senior notes -- 100,000
Bank credit facilities -- 798,348
7.53% secured note -- 14,058
---------- ----------
$2,000,000 $1,481,406
========== ==========
In connection with the consummation of the Time Warner Transactions, the Company
borrowed $1.5 billion from KBLCOM under the Credit Agreement. The Company used
approximately $1.2 billion of such proceeds to repay or redeem all of its
outstanding indebtedness with the exception of the 9.25% senior debentures and
10.75% senior notes, including $220 million of indebtedness that was assumed in
the Gerry Acquisition, plus redemption premiums thereon of $16 million (the "CVI
Debt Refinancing"). In addition to the CVI Debt Refinancing, $211 million was
used to consummate the Gerry Acquisition and $62 million was used to pay for
9
<PAGE>
one-time costs related to the CVI Merger and transaction costs related to the
Gerry Acquisition (see Note 5). Upon consummation of the TWI Cable
Reorganization, the Company assumed all of KBLCOM's obligations under the Credit
Agreement, resulting in the cancellation of its $1.5 billion note payable to
KBLCOM. Prior to the TWI Cable Reorganization, the Company had guaranteed the
obligations of KBLCOM under the Credit Agreement. The Credit Agreement permits
aggregate borrowings by the Company of $4.0 billion, subject to certain
limitations and adjustments, which will be used to fund ongoing working capital,
capital expenditures and other corporate needs of the Company and its
subsidiaries. Borrowings under the Credit Agreement bear interest at rates
generally equal to LIBOR plus an initial margin of 87.5 basis points, which
margin will vary based on the credit rating or financial leverage of the
borrower. Interest expense for borrowings under the Credit Agreement for the
nine months ended September 30, 1996 totaled $72 million.
In connection with the Time Warner Transactions on January 4, 1996, the Company
realized an extraordinary loss, net of applicable tax benefit, of approximately
$9.7 million on the early extinguishment of debt.
In conjunction with certain provisions in its pre-existing bank credit
agreements, the Company entered into various interest rate exchange agreements
(the "Swaps") pursuant to which the interest rate on $365 million was fixed at a
weighted average swap rate of 6.22% plus the applicable margin over the
Eurodollar rate option under the respective bank credit agreements. These Swaps
were all terminated during the first half of 1996 at a total cost of
approximately $1.5 million.
Based on the level of interest rates prevailing at September 30, 1996, the fair
value of the Company's fixed-rate debt exceeded its carrying value by $40
million. Based on the level of interest rates prevailing at December 31, 1995,
the fair value of the Company's fixed-rate debt exceeded its carrying value by
$59 million and it would have cost $3 million to terminate its interest rate
swap contracts which, on a combined basis, was the equivalent of an unrealized
loss of $62 million. Unrealized gains or losses on debt or interest rate swap
contracts are not recognized for financial reporting purposes unless the debt is
retired or the contracts are terminated prior to their maturity.
5. EMPLOYMENT ARRANGEMENTS
In anticipation of the CVI Merger, the Company entered into retention agreements
(the "Agreements") with certain executive officers and key employees
(collectively "Executives") during 1995 whereby the Company agreed to make
retention payments to the Executives. The Agreements superseded any prior
agreements between the Company and the Executives relating to the payment of
deferred compensation or other forms of additional compensation payable in the
form of cash or equity interest in the Company. The Company also adopted a
Severance Pay Plan (the "Severance Plan") whereby eligible employees would
receive a payment based upon a specified formula. The Agreements and Severance
Plans were fully accrued for in 1995.
As a result of the Agreements and Severance Plan, the Company paid out
approximately $93 million during the nine months ended September 30, 1996.
6. RELATED PARTIES
Included in the Company's operating expenses after the CVI Merger are charges
for programming and promotional services provided by Home Box Office and other
affiliates of Time Warner. These charges are based on customary rates. For the
nine months ended September 30, 1996, these charges totaled $16.8
million. In addition, the Company has entered into a management service
arrangement with TWE, pursuant to which TWE is responsible for the management
and operation of a majority of the Company's cable systems. The management fees
paid to TWE by the Company are based on an allocation of the corporate expenses
of
10
<PAGE>
TWE's cable division in proportion to the respective number of subscribers of
all cable systems managed by TWE's cable division. For the nine months ended
September 30, 1996, these fees totaled $15.5 million.
Under a tax-sharing agreement between the Company and Time Warner, the Company
will pay to, or receive from, Time Warner, amounts equal to the total current
domestic income tax provision (benefit) provided by the Company. Included in
current assets at September 30, 1996, is a $25.9 million receivable due from
Time Warner.
7. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to litigation incidental to
the business of the Company. In the opinion of counsel and management, the
ultimate resolution of these matters will not have a material effect on the
financial statements.
11
<PAGE>
TWI CABLE INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS
OVERVIEW
The Company had revenues of $135.0 million and $399.7 million, and net losses of
$7.1 million and $35.8 million for the three and nine month periods ended
September 30, 1996, respectively, compared to revenues of $108.7 million and
$318.8 million, and net losses of $15.9 million and $34.9 million for the
three and nine month periods ended September 30, 1995, respectively. Operating
income before depreciation and amortization ("EBITDA") for the three and nine
months ended September 30, 1996 increased to $65.9 million and $194.2 million,
respectively, compared to EBITDA of $49.7 million and $142.3 million for the
same periods in 1995.
Industry analysts generally consider EBITDA to be an important measure of
comparative operating performance for the cable industry and, when used in
comparison to debt levels or the coverage of interest expense, as a measure of
liquidity. EBITDA, however, should be considered in addition to, not as a
substitute for, operating income, net income, cash flow and other measures of
financial performance and liquidity reported in accordance with generally
accepted accounting principles.
On a proforma basis, giving effect to the Gerry Acquisition as if this
transaction occurred as of January 1, 1995, the Company would have reported the
following approximate amounts for the three and nine month periods ended
September 30, 1995, respectively: revenues of $130 million and $383 million,
operating income of $21 million and $50 million, EBITDA of $67 million and $188
million, depreciation and amortization expense of $46 million and $138 million,
and net losses of $16 million and $37 million.
OPERATING INCOME
Operating income increased to $25.8 million and $73.5 million for the three and
nine month periods ended September 30, 1996, compared to $14.8 million and $37.6
million for the three and nine month periods ended September 30, 1995,
respectively. Current year revenue benefitted from the Gerry Acquisition on
January 4, 1996. Excluding the Gerry Acquisition, revenue increased primarily
due to increases in regulated cable rates phased in during February 1996 as
permitted under Time Warner Cable's "social contract" with the Federal
Communications Commission and year-to-year basic subscriber growth of
approximately 3%. Excluding the positive impact from the Gerry Acquisition,
operating income increased as a result of the revenue gain, lower programming
expenses resulting from the transition to Time Warner's programming contracts,
and lower corporate related expenses reflecting the reduction of corporate
expenses in connection with the closing of the Company's corporate and regional
facilities and the subsequent termination of related personnel as a direct
result of the integration of the operations of the Company into Time Warner's
existing operating structure.
INTEREST EXPENSE, NET
Interest expense, net increased to $36.6 million and $111.9 million for the
three and nine month periods ended September 30, 1996 compared to $31.0 million
and $92.8 million for the same periods in 1995 due to increased borrowing levels
reflecting the assumption or incurrence of approximately $431 million of debt
relating to the Gerry Acquisition which has been partially offset by interest
savings achieved through the CVI Debt Refinancing.
12
<PAGE>
OTHER INCOME (EXPENSE)
- ----------------------
On a quarter-to-quarter basis, other expense, net, increased to $2.2 million,
compared to $0.4 million in the third quarter of 1995. This increase is
primarily due to $1.6 million in expenses resulting from cable plant damage
incurred from a hurricane experienced in North Carolina in September, 1996. On
a year-to-date basis, other income, net, of $18.9 million reported in 1995
decreased to other expense, net, of $2.0 million reported in 1996. This
decrease reflects a net gain of $20.1 million realized on a sale of marketable
securities during the first quarter of 1995.
INCOME TAX BENEFIT
Income tax benefit increased to $5.9 million and $14.1 million for the three and
nine month periods ended September 30, 1996 compared to $0.6 million and $1.3
million for the same periods in 1995. This increase is primarily attributable to
increased tax benefits recorded by the Company during 1996, since it is now
included in the consolidated federal income tax return of Time Warner and its
losses are utilized on a current basis.
EXTRAORDINARY LOSS ON RETIREMENT OF DEBT
An extraordinary loss on retirement of debt of $9.7 million (net of applicable
tax benefit) was recorded during the first quarter of 1996. This extraordinary
loss reflects redemption premiums incurred as a result of the CVI Debt
Refinancing.
13
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
There were no material legal proceedings instituted during the nine month period
ended September 30, 1996. There were also no material developments in any of the
other existing legal proceedings which were previously reported in the Company's
Annual Report filed with the SEC on Form 10-K for the fiscal year ended December
31, 1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
None.
(b) Reports on Form 8-K
-------------------
The Company filed a Current Report on Form 8-K dated October 1, 1996
reporting in Item 5 that Time Warner had completed a reorganization of
certain of its wholly owned cable subsidiaries. The Company set forth in
Item 7 certain pro forma consolidated condensed financial statements of the
Company as of and for the six months ended June 30, 1996 giving effect to
the TWI Cable Reorganization as if the underlying transactions had occurred
at such date with respect to the balance sheet, and at the beginning of
1995 with respect to the statement of operations.
14
<PAGE>
SIGNATURE
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.
TWI CABLE INC.
Date: November 12, 1996 By: /S/ RICHARD M. PETTY
Name: Richard M. Petty
Title Vice President and Controller
(Principal Accounting
Officer)
15
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0
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