This summary is based on the first quarter fiscal 2008 earnings call conducted by Time Warner Inc. (TWX) on April 30, 2008.
Management:
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President, Chief Executive Officer, Director:
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Chief Financial Officer, Executive Vice President: John K. Martin Jr.
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Vice President, Investor Relations: Doug Shapiro
Key Investors Issues
- Revenues rose 2% to $11.4 billion from $11.2 billion in the prior year.
- Net income was down 35.9% to $771 million or 22 cents a share.
- At quarter end, nearly $2.8 billion of the $5 billion stock repurchase authorization had been used.
First Quarter Highlights
Consolidated revenues, which grew 2% year over year to $11.4 billion from $11.2 billiom in 2007 was affected by the year-over-year declines in AOL subscription revenue.
- A handful of items resulted in a modest 1% reported year-over-year decline in adjusted OIBDA such as a decline in the film line due to $116 million in restructuring charges at New Line Cinema.
- In the networks line, OIBDA was negatively affected by the timing of recognition of programming expenses.
- Adjusted Operating Income before Depreciation and Amortization, which included $116 million in restructuring charges associated with the announced operational reorganization of the New Line Cinema business, declined 1% to $3.1 billion.
Declines at the AOL and Filmed Entertainment segments were offset almost entirely by strong growth at the Cable, Networks and Publishing segments.
- Net income was down 35.9% to $771 million or 22 cents a share, from $1.2 billion or 31 cents a share in 2007 due largely to the absence of the significant gain on the sale of AOL’s Internet access business in Germany in the prior year quarter.
- Free cash flow was $1.8 billion, with the increase helped by a favorable swing in working capital due mostly to lower receivables in the film division related to cash collections on home video receivables.
- The firm had $34.6 billion of net debt, about $1 billion lower than the prior year with the decrease due to the $1.8 billion in free cash flow generation offset by $332 million in share repurchases, $258 million in acquisitions, and $224 million in dividend payments.
- At quarter end, nearly $2.8 billion of the $5 billion stock repurchase authorization had been used.
Corporate Restructuring:
- The firm has decided that under the right circumstances, a complete structural separation is in the best interest of both Time Warner shareholders and Time Warner Cable shareholders.
- It has been engaged in extensive discussions with Time Warner Cable''s management and its board and is close to reaching an agreement on the terms of a separation.
- It also intents to separate the AOL access and audience businesses from both a financial and an operating perspective and this should be concluded by the end of the second quarter.
The firm has completely restructured New Line’s operations and is now running it under the Warner Brothers umbrella with a fraction of the historical costs.
- The reorganization is expected to generate substantial cost savings, mostly because it will retain international rights, revenue improvements so that once completed, the annual benefit of this should be in excess of the $140 million level.
- It has also completed the plan to reduce corporate costs by over $50 million annually, or 15%, compared to year-ago levels.
Segment Highlights:
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AOL revenues decreased 23% ($330 million) to $1.1 billion, reflecting a 38% decline ($334 million) in Subscription revenues, offset slightly by a 1% increase ($3 million) in Advertising revenues.
- Driving the decline in Subscription revenues was a decrease in domestic AOL brand subscribers, resulting from AOL’s previously announced strategy to offer its e-mail and other products free of charge to Internet consumers.
- Advertising revenues reflected growth in sales of advertising on third-party Internet sites, fueled in part by acquisitions, and paid-search advertising, offset mainly by a decline in display advertising.
Operating income decreased 74% ($800 million) to $284 million, due mainly to the sale of AOL’s German Internet access business, which generated a pretax gain of approximately $670 million in the year-ago period.
- AOL had 110 million average monthly domestic unique visitors and 52 billion domestic page views, according to comScore Media Metrix, which translates into 159 average monthly domestic page views per unique visitor.
- As of March 31, 2008, the AOL service had 8.7 million U.S. access subscribers, a decline of 647,000 from the prior quarter and 3.3 million from the year-ago period.
With the recent launches of both Tacoda and Quigo targeting technologies across Platform A, as well as new automated products for both advertisers and publishers, the firm expects strong continued growth.
- It has integrated the disparate ad network sales organizations with the AOL brand sales group to create one sales team that is able and motivated to sell across all of Platform A.
- This will also enable advertisers to purchase media across both the AOL and third-party networks for the first time through one sales content.
