This summary is based on the second quarter fiscal 2007 earnings call conducted by Time Warner Inc. (TWX) on August 1, 2007.
Management
President and COO: Jeff Bewkes
Chief Executive Officer: Richard Parsons
Chief Financial Officer: Wayne Pace
Investor Relations: James Burtson
Key Investors Issues
- Earnings per share rose to 28 cents from 24 cents in the prior year quarter.
- Quarterly revenue grew 6% over the previous year to $11 billion.
- The firm now anticipates earnings per share for the full year to be approximately $1.07.
- The Board of Directors has authorized a new $5 billion stock repurchase program.
Second Quarter Fiscal 2007 Financial Highlights
In the quarter, revenues rose 6% over the same period in 2006 to $11 billion, led by growth at the Cable segment.
Adjusted Operating Income before Depreciation and Amortization climbed 20% to $3.1 billion, reflecting double-digit increases at the Cable, Publishing and Networks segments. This growth was offset partly by declines at the Filmed Entertainment and AOL segments. Operating Income was up 12% to $1.9 billion.
- For the first six months, cash provided by operations amounted to $3.1 billion, and free cash flow totaled $2 billion (representing a 33% conversion rate of adjusted operating income before depreciation and amortization).
- As of June 30, 2007, net debt was $35 billion, up $1.6 billion from $33.4 billion at the end of 2006, due primarily to the company’s prior stock repurchase program.
Diluted income per common share before discontinued operations and cumulative effect of accounting change was 25 cents compared to 20 cents in last year.
The current and prior year amounts included certain items affecting comparability. The net impact of such items was to increase the current and prior year quarters’ results by 3 cents and 1 cent, respectively. The current quarter included an approximate $100 million pre-tax gain from the sale of Time, Inc.’s 50% ownership of Book Span and approximately $77 million of tax benefits that related primarily to the realization of tax attribute carry forward and the change of certain tax laws in states that affected the firm’s businesses. These items were principally offset by a $34 million non-cash charge relayed to the impairment of the Court TV trade name as a result of the network’s rebranding initiative. Adjusting for these items, diluted EPS for the quarter increased 3 cents or 16%, to 22 cents.
The Board of Directors has authorized a new $5 billion stock repurchase program.
Purchases under the stock repurchase program may be made from time to time on the open market and in privately negotiated transactions. Size and timing of these purchases will be based on factors including price as well as business and market conditions.
In completing its previous stock repurchase program on schedule at the end of the second quarter, the company repurchased approximately 1.1 billion shares of common stock, or about 23% of the total outstanding shares at the program’s inception, for approximately $20 billion.
On May 16, 2007, Time Warner and Liberty Media Corporation completed a transaction in which Liberty exchanged 68.5 million shares of Time Warner common stock (including 4 million shares of common stock that are expected to be delivered upon the resolution of a working capital adjustment) for a subsidiary that owned assets, including the Atlanta Braves baseball franchise, Time Inc.’s Leisure Arts, Inc. and $960 million of cash.
Performance Analysis of Segments
Time Warner Cable
In the typically seasonally weak second quarter, Time Warner Cable continued to thrive penetration gains in digital video, high speed data and digital phone subscriptions. Altogether, the cable segment added over 500,000 net RGUs and they are on track to achieve all of their full year objectives. Overall, triple play penetration now stands at 13%, up from 12% at the end of the first quarter. The firm remains very comfortable with Time Warner Cable’s competitive positions and ability to generate compelling growth over the duration of the long term plan.
The company’s confidence is based on the following business initiatives that provide tangible building blocks but continued strong growth.
- There is still head room in the existing residential product lines in Time Warner Cable’s legacy footprint.
- The firm has plenty of up side to realize from the acquired Adelphia and Comcast properties.
- There are significant medium-term opportunities to gain shares in a sizable small to medium commercial space.
- The firm sees great longer term potential to create meaningful value through advanced advertising.
With these opportunities, the firm expects cable to continue to be a powerful generator of growth for years to come.
Film Segment
