BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Condensed Consolidated Financial Statements
Three and Nine‑Month Periods ended September 30, 2015 and 2014
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Table of Contents
|
| |
| | Page(s) |
| Condensed Consolidated Financial Statements: | |
| Condensed Consolidated Balance Sheets | 2 |
| Condensed Consolidated Statements of Income | 3 |
| Condensed Consolidated Statements of Comprehensive Income | 4 |
| Condensed Consolidated Statements of Cash Flows | 5 |
| Notes to Condensed Consolidated Financial Statements | 6-12 |
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(In thousands of dollars)
|
| | | | | | |
| | September 30,
2015 | | December 31, |
| | (unaudited) | | 2014 |
| Assets | | | |
| Current Assets: | | | |
| Cash and cash equivalents | $ | 43,093 |
| | 653,714 |
|
| Short-term marketable securities (note 3) | — |
| | 112,397 |
|
| Accounts receivable-trade, net of allowances of $20,956 and $19,250 as | | | |
| of September 30, 2015 and December 31, 2014, respectively | 159,912 |
| | 179,383 |
|
| Other current assets | 30,524 |
| | 55,564 |
|
| Total current assets | 233,529 |
| | 1,001,058 |
|
| | | | |
| Property, plant and equipment, net | 2,169,495 |
| | 2,130,642 |
|
| Long-term marketable securities (note 3) | — |
| | 362,940 |
|
| Investments | 12,279 |
| | 12,006 |
|
| Goodwill | 12,746 |
| | 12,746 |
|
| Intangible assets, net (note 4) | 854,941 |
| | 851,484 |
|
| Other assets | 12,169 |
| | 50,241 |
|
| Total assets | $ | 3,295,159 |
| | 4,421,117 |
|
| | | | |
| Liabilities and Member's Equity | | | |
| Accounts payable and other current liabilities (note 5) | $ | 330,201 |
| | 348,342 |
|
| Current maturities of long-term debt (note 6) | 342,857 |
| | 42,857 |
|
| Deferred revenue | 63,084 |
| | 62,946 |
|
| Total current liabilities | 736,142 |
| | 454,145 |
|
| | | | |
| Long-term debt (note 6) | 128,571 |
| | 471,429 |
|
| Other liabilities (note 7) | 470,639 |
| | 479,722 |
|
| Total liabilities | 1,335,352 |
| | 1,405,296 |
|
| | | | |
| Commitments and contingencies (note 11) | | | |
| Member's equity | 1,959,807 |
| | 3,015,821 |
|
| Total liabilities and member's equity | $ | 3,295,159 |
| | 4,421,117 |
|
See accompanying notes to condensed consolidated financial statements.
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(In thousands of dollars)
(unaudited)
|
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | | |
| Revenues: | | | | | | | |
| Subscriber | $ | 916,217 |
| | 866,519 |
| | 2,785,186 |
| | 2,616,778 |
|
| Advertising and other | 47,910 |
| | 55,800 |
| | 146,280 |
| | 144,093 |
|
| Total revenues | 964,127 |
| | 922,319 |
| | 2,931,466 |
| | 2,760,871 |
|
| | | | | | | | |
| Costs, expenses and other: | | | | | | | |
| Operating expenses | 666,843 |
| | 629,397 |
| | 1,999,271 |
| | 1,879,333 |
|
| Depreciation and amortization | 116,070 |
| | 105,663 |
| | 339,948 |
| | 305,142 |
|
| Gain from disposal of assets, net and other income | (1,745 | ) | | (1,437 | ) | | (23,677 | ) | | (3,269 | ) |
| Income from equity investments | (494 | ) | | (560 | ) | | (1,313 | ) | | (1,616 | ) |
| Interest, net | 8,497 |
| | 8,926 |
| | 24,969 |
| | 28,931 |
|
| Total costs and expenses | 789,171 |
| | 741,989 |
| | 2,339,198 |
| | 2,208,521 |
|
| | | | | | | | |
| Net income | $ | 174,956 |
| | 180,330 |
| | 592,268 |
| | 552,350 |
|
See accompanying notes to condensed consolidated financial statements.
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Comprehensive Income
(In thousands of dollars)
(unaudited)
|
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | | | | | | | |
| Net income | $ | 174,956 |
| | 180,330 |
| | 592,268 |
| | 552,350 |
|
| Change in unrecognized amounts included in | | | | | | | |
| pension and postretirement obligations | 3,175 |
| | 932 |
| | 9,525 |
| | 2,796 |
|
| Comprehensive income | $ | 178,131 |
| | 181,262 |
| | 601,793 |
| | 555,146 |
|
See accompanying notes to condensed consolidated financial statements.
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(In thousands of dollars)
(unaudited)
|
| | | | | | | |
| | | Nine months ended |
| | | September 30, |
| | | 2015 | | 2014 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 592,268 |
| | 552,350 |
|
| Adjustments to reconcile net income to cash flows from | | | | |
operating activities:
| | | | |
| Depreciation and amortization | | 339,948 |
| | 305,142 |
|
| Income from equity investments | | (1,313 | ) | | (1,616 | ) |
| Gain on disposal of assets, net | | (3,236 | ) | | (3,269 | ) |
| Change in operating assets and liabilities: | | | | |
| Accounts receivable | | 19,471 |
| | (10,669 | ) |
| Other current assets | | 22,579 |
| | (2,337 | ) |
| Other assets | | 6,374 |
| | 1,853 |
|
| Accounts payable and other liabilities | | (17,699 | ) | | (7,773 | ) |
| Deferred revenue | | 138 |
| | 9,030 |
|
| Net cash provided by operating activities | | 958,530 |
| | 842,711 |
|
| | | | | |
| Cash flows from investing activities: | | | | |
| Capital expenditures | | (371,639 | ) | | (398,248 | ) |
| Franchise expenditures | | (10,984 | ) | | (7,573 | ) |
| Purchases of marketable securities | | (205,932 | ) | | (541,157 | ) |
| Proceeds from sale and maturities of marketable securities | | 192,005 |
| | 81,949 |
|
| Acquisitions of investments and other assets | | (424 | ) | | (530 | ) |
| Transfer from (to) restricted cash | | 35,807 |
| | (31,282 | ) |
| Proceeds from sale of other assets | | 3,236 |
| | 3,269 |
|
| Net cash used in investing activities | | (357,931 | ) | | (893,572 | ) |
| | | | | |
| Cash flows from financing activities: | | | | |
| Member distributions | | (1,168,363 | ) | | (298,800 | ) |
| Repayment of senior note | | (42,857 | ) | | (42,857 | ) |
| Net cash used in financing activities | | (1,211,220 | ) | | (341,657 | ) |
| | | | | |
| Net decrease in cash and cash equivalents | | (610,621 | ) | | (392,518 | ) |
| Cash and cash equivalents at beginning of period | | 653,714 |
| | 1,001,774 |
|
| Cash and cash equivalents at end of period | | $ | 43,093 |
| | 609,256 |
|
| | | | | |
| Interest paid | | $ | 37,821 |
| | 41,036 |
|
| | | | | |
| Noncash financing activities: | | | | |
| Member distributions of marketable securities | | $ | 489,444 |
| | — |
|
See accompanying notes to condensed consolidated financial statements.
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
| |
| (1) | Organization and Summary of Significant Accounting Policies |
| |
| (a) | Description of Business |
Bright House Networks, LLC and subsidiaries (BHN or the Company) is a cable operator with its primary markets in Florida, Michigan, Alabama, Indiana and California. The Company provides its subscribers with video, high‑speed data and digital phone services. The Company also sells advertising on its cable systems to local and national advertisers.
The Company is a wholly owned subsidiary of Time Warner Entertainment‑Advance/Newhouse (TWE‑A/N). TWE‑A/N is a partnership between Advance/Newhouse Partnership (A/N) and a subsidiary of Time Warner Cable Inc. (TWC). A/N is the manager of the Company and is entitled to 100% of its economic benefits.
| |
| (b) | Interim Financial Statements |
The condensed 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, in all material respects, the financial position, results of operations and cash flows for the periods presented in conformity with accounting principles generally accepted in the United States of America (GAAP) applicable to interim periods. Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with GAAP have been condensed or omitted. The condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2014, which report was dated March 27, 2015.
| |
| (c) | Basis of Consolidation |
The accompanying condensed consolidated financial statements include all of the accounts and all entities that are majority‑owned by the Company and are required to be consolidated in accordance with GAAP. The Company has eliminated intercompany accounts and transactions among consolidated entities.
The Company pays for programming provided to its subscribers under joint contracts with TWC. Amounts paid to TWC for programming and other services were $258.6 million and $782.6 million for the three and nine months ended September 30, 2015, respectively, and $241.6 and $728.7 for the three and nine months ended September 30, 2014, respectively. At September 30, 2015 and December 31, 2014, unpaid balances due to TWC were $159.7 million and $154.4 million, respectively. Such amounts are included in accounts payable and other current liabilities in the accompanying condensed consolidated balance sheets.
In the normal course of business, the Company is assessed nonincome related taxes by governmental authorities, including franchising authorities, and collects such taxes from its subscribers. The Company’s policy is that, in instances where the tax is being assessed directly on the Company, amounts paid to governmental authorities and amounts received from subscribers are recorded on a gross basis. That is, amounts paid to governmental authorities are recorded as operating expenses and amounts received from subscribers are recorded as revenues. The amount of such fees included as a component of revenues was
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
$22.9 million and $70.3 million for the three and nine months ended September 30, 2015 and $22.1 and $67.8 for the three and nine months ended September 30, 2014, respectively.
The Company recorded income of $20.4 million in the nine months ended September 30, 2015, for minimum payments due under its agreement with Verizon, which is included in Gain from disposal of assets, net and other income in the condensed consolidated statements of income in 2015. The amount was paid in full in July 2015.
| |
| (e) | Fair Value Disclosures |
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy, as defined below, gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
| |
| Level 1 - | Defined as observable inputs such as unadjusted quoted prices in active markets for identical assets or liabilities |
| |
| Level 2 - | Defined as observable inputs other than Level 1 inputs. These include quoted prices for similar assets or liabilities in an active market, quoted prices for identical assets and liabilities that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| |
| Level 3 - | Defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. |
The carrying value of accounts receivable, accounts payable, and other current liabilities approximates fair value because of the relatively short maturity of these items.
The Company’s marketable securities, which included U.S. Treasury securities, corporate debt securities, U.S. government agency securities, municipal securities, certificates of deposit and commercial paper, were recorded at fair value (note 3). The Company classified these investments as Level 2 since the fair value estimates were based on market observable inputs for investments with similar terms and maturities.
The accompanying condensed consolidated financial statements are prepared in accordance with GAAP, which requires that management make estimates and assumptions that affect the reported amounts. Actual results could differ from these estimates.
Significant estimates inherent in the preparation of the accompanying condensed consolidated financial statements include accounting for asset impairments, allowances for doubtful accounts, investments, depreciation and amortization, pension benefits, and contingencies. Allocation methodologies used to prepare the accompanying condensed consolidated financial statements are based on estimates and are described in the notes, where appropriate.
On March 31, 2015, A/N entered into an agreement (the Agreement) with Charter Communications, Inc. (Charter) whereby Charter will acquire the BHN business (with the exception of certain excluded assets and liabilities). On May 26, 2015, Charter and TWC announced that they had entered into an agreement to merge, following
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
which Charter and A/N amended their Agreement. Following the closing of the merger between Charter and TWC and the acquisition of BHN by Charter (which transactions are expected to close contemporaneously), A/N is expected to own between 14% and 13% of the combined Charter‑TWC‑BHN business (depending on final elections of cash versus stock available to shareholders of TWC), on an as‑converted, as‑exchanged basis.
The Agreement, as amended, between Charter and A/N is subject to several conditions, including, the completion of the merger between Charter and TWC (subject to certain exceptions if TWC enters into another sale transaction), Charter shareholder approval, TWC shareholder approval and regulatory approvals.
Our marketable debt securities consisted of the following at:
|
| | | | | | | |
| | | September 30, | | December 31, |
| | | 2015 | | 2014 |
| | | (In thousands) |
| Short-term marketable securities: | | | | |
| U.S. Treasury securities | | $ | — |
| | 27,782 |
|
| Corporate debt securities | | — |
| | 3,103 |
|
| U.S. agency securities | | — |
| | 17,491 |
|
| Municipal securities | | — |
| | 13,552 |
|
| Certificates of deposit | | — |
| | 18,998 |
|
| Commercial paper | | — |
| | 31,471 |
|
| | | | | |
| Total short-term marketable securities | | $ | — |
| | 112,397 |
|
| | | | | |
| Long-term marketable securities: | | | | |
| Corporate debt securities | | — |
| | 73,424 |
|
| U.S. agency securities | | — |
| | 129,782 |
|
| Municipal securities | | — |
| | 159,734 |
|
| | | | | |
| Total long-term marketable securities | | $ | — |
| | 362,940 |
|
On July 1, 2015, the Company distributed all marketable securities to A/N.
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
Intangible assets and related accumulated amortization consist of the following at:
|
| | | | | | | | | | | | | | | | | | | |
| | | September 30, 2015 | | December 31, 2014 |
| | | Gross Carrying Amount | | Accumulated Amortization | | Total | | Gross Carrying Amount | | Accumulated Amortization | | Total |
| | | (In thousands) |
| Indefinite-lived cable | | | | | | | | | | | | |
| franchise rights | | $ | 801,760 |
| | — |
| | 801,760 |
| | 801,760 |
| | — |
| | 801,760 |
|
| Finite-lived intangible assets: | | | | | | | | | | | | |
| Renewal of cable franchise rights | | 90,137 |
| | (82,886 | ) | | 7,251 |
| | 85,246 |
| | (82,177 | ) | | 3,069 |
|
| Deferred right-of-way costs | | 90,392 |
| | (47,153 | ) | | 43,239 |
| | 84,297 |
| | (40,923 | ) | | 43,374 |
|
| Trade names and subscriber lists | | 1,564 |
| | (861 | ) | | 703 |
| | 1,564 |
| | (625 | ) | | 939 |
|
| Other | | 5,530 |
| | (3,542 | ) | | 1,988 |
| | 5,530 |
| | (3,188 | ) | | 2,342 |
|
| | | | | | | | | | | | | |
| | | 187,623 |
| | (134,442 | ) | | 53,181 |
| | 176,637 |
| | (126,913 | ) | | 49,724 |
|
| Total intangible | | | | | | | | | | | | |
| assets, net | | $ | 989,383 |
| | (134,442 | ) | | 854,941 |
| | 978,397 |
| | (126,913 | ) | | 851,484 |
|
| |
| (5) | Accounts Payable and Other Current Liabilities |
Accounts payable and other current liabilities consist of the following at:
|
| | | | | | | |
| | | September 30, | | December 31, |
| | | 2015 | | 2014 |
| | | (In thousands) |
| | | | | |
| Accounts payable | | $ | 62,431 |
| | 77,638 |
|
| Amount owed to TWC | | 159,725 |
| | 154,367 |
|
| Other | | 108,045 |
| | 116,337 |
|
| | | | | |
| | | $ | 330,201 |
| | 348,342 |
|
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
The following table summarizes the Company’s debt arrangements:
|
| | | | | | | | | | | | | |
| | | | | | | Balance outstanding |
| | | | | Principal | | September 30, | | December 31, |
| Type | | Maturity | | Amount | | 2015 | | 2014 |
| | | | | | | (In thousands) |
| | | | | | | | | |
| Senior notes | | 2016 | | $ | 300,000 |
| | 300,000 |
| | 300,000 |
|
| Senior notes | | 2019 | | 300,000 |
| | 171,428 |
| | 214,286 |
|
| Revolving credit | | 2018 | | 500,000 |
| | — |
| | — |
|
| | | | | | | | | |
| Total | | | | $ | 1,100,000 |
| | 471,428 |
| | 514,286 |
|
| Less current portion | | | | | | 342,857 |
| | 42,857 |
|
| | | | | | | | | |
| Total long-term debt | | | | | | $ | 128,571 |
| | 471,429 |
|
The Company’s debt had an estimated fair value of $540.0 million and $564.0 million as of September 30, 2015 and December 31, 2014, respectively. The estimated fair value of the Company’s privately held debt was based on available interest rates for debt issuances with similar terms and remaining maturities. Unrealized gains or losses on debt do not result in the realization or expenditure of cash and are not recognized for financial reporting purposes unless the debt is retired prior to its maturity.
The Company is required to maintain certain financial covenants and was in compliance with those covenants as of September 30, 2015. In the event of a change in control, the Company is required to give written notice to each holder containing an offer to prepay the senior notes at a price of 100% of the principal amount of the senior notes plus accrued and unpaid interest, accrued to such date of prepayment, plus a make‑whole amount.
Interest expense for the instruments above, including amortization of deferred financing fees and other fees of $0.4 million and $1.2 million for the three and nine months ended September 30, 2015 and $0.5 million and $1.2 million for the three and nine months ended September 30, 2014, respectively, was $9.3 million and $29.0 million for the three and nine months ended September 30, 2015 and $10.1 million and $31.4 million for the three and nine months ended September 30, 2014, respectively.
Other liabilities consist of the following:
|
| | | | | | | |
| | | September 30, | | December 31, |
| | | 2015 | | 2014 |
| | | (In thousands) |
| | | | | |
| Accrued pension benefits | | $ | 420,658 |
| | 420,648 |
|
| Other | | 49,981 |
| | 59,074 |
|
| | | | | |
| | | $ | 470,639 |
| | 479,722 |
|
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
| |
| (8) | Accumulated Other Comprehensive Loss |
Accumulated other comprehensive loss consists of the following at December 31:
|
| | | | | | | |
| | | September 30, | | December 31, |
| | | 2015 | | 2014 |
| | | (In thousands) |
| | | | | |
| Cumulative net unrecognized loss on pension and other | | | | |
| postretirement employee benefits | | $ | 214,393 |
| | 223,918 |
|
| |
| (9) | Pension and Other Postretirement Benefits |
The Company sponsors a funded pension plan, the Bright House Networks Pension Plan (the Plan). The Plan provides employees with retirement benefits in accordance with benefit provision formulas based on years of service and compensation. Additionally, the Company sponsors unfunded supplemental pension benefit plans for a select group of management and highly compensated employees and provides postretirement healthcare to retirees and eligible dependents.
A summary of the components of the net periodic benefit costs for the Company’s pension and postretirement benefit plans are as follows:
|
| | | | | | | | | | | | |
| | Three months ended September 30, | | Nine months ended September 30, |
| | 2015 | | 2014 | | 2015 | | 2014 |
| | (In thousands) | | (In thousands) |
| | | | | | | | |
| Service cost | $ | 10,850 |
| | 8,389 |
| | 32,550 |
| | 25,167 |
|
| Interest cost | 7,599 |
| | 6,313 |
| | 22,797 |
| | 18,939 |
|
| Expected return on plan assets | (5,425 | ) | | (6,998 | ) | | (16,275 | ) | | (20,994 | ) |
| Amortization of net loss | 3,175 |
| | 932 |
| | 9,525 |
| | 2,796 |
|
| | | | | | | | |
| Net period benefit cost | $ | 16,199 |
| | 8,636 |
| | 48,597 |
| | 25,908 |
|
| | | | | | | | |
| Contributions to the Plan | $ | 16,618 |
| | 23,000 |
| | 36,962 |
| | 45,000 |
|
BRIGHT HOUSE NETWORKS, LLC AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
Three and Nine-Month Periods ended September 30, 2015 and 2014
(Unaudited)
| |
| (10) | Related Party Transactions |
Advance Publications, Inc. and its wholly owned subsidiaries (Advance) is a related party to the Company due to its ownership of A/N (note 1). Amounts due from Advance (included within other current assets in the accompanying condensed consolidated balance sheets at September 30, 2015 and December 31, 2014) are as follows:
|
| | | | | | | |
| | | September 30, | | December 31, |
| | | 2015 | | 2014 |
| | | (In thousands) |
| | | | | |
| Total due from Advance, net | | $ | 579 |
| | 24,247 |
|
The accompanying condensed consolidated statements of income include allocations from Advance for certain corporate administrative expenses. Total allocated corporate expense was $18.3 million and $54.8 million for the three and nine months ended September 30, 2015 and $12.0 million and $36.0 million for the three and nine months ended September 30, 2014, respectively, which is recorded by the Company as a component of operating expense within the accompanying condensed consolidated statements of income. Additionally, the Company recognized interest income of $0.5 million and $1.4 million for the three and nine months ended September 30, 2015 and $0.5 million and $1.4 million for the three and nine months ended September 30, 2014 pursuant to its revolving credit agreement with Advance. The aforementioned interest income is recorded as a component of interest, net within the accompanying condensed consolidated statements of income.
| |
| (11) | Commitments and Contingencies |
The Company has certain pending lawsuits, which, in the opinion of management, will not have a material adverse effect upon the financial condition of the Company.
The Company has evaluated subsequent events that have occurred through November 4, 2015, the date which the accompanying consolidated financial statements were available to be issued, and has determined there were no material events since the balance sheet date of this report requiring disclosure or adjustment to the accompanying consolidated financial statements.
