This summary is based on the third quarter fiscal 2007 earnings call conducted by Time Warner Inc. (TWX) on November 7, 2007.
Management:
Chairman, Chief Executive Officer: Richard D. Parsons
Chief Financial Officer, Executive Vice-President: Wayne H. Pace
President, Chief Operating Officer: Jeffrey L. Bewkes
Senior Vice-President, Investor Relations: James E. Burtson
Key Investors Issues
- Revenues were up 9% to $11.7 billion.
- Net income was down 53% from $2.3 billion in 2006 to $1.1 billion.
- The CEO stepped down after six years of service.
Year-to-Date Highlights
- Revenues increased by 7.9% from $31 billion in 2006 to $33.6 billion.
- Net income was down 30.1% to $3.4 billion or 88 cents a share.
- Cash provided by operations amounted to $6.2 billion, and free cash flow totaled $4 billion.
Third Quarter Highlights
Revenues increased 9% from $10.75 billion over the prior year to $11.7 billion led by growth at the Cable, Filmed Entertainment and Networks segments.
- Adjusted O-EBIDTA grew 15% to $3.2 billion as margins increased by 150 basis points over the prior year to 28% due to lower expenses at AOL and the sales of AOL’s European internet access businesses.
- Adjusted Operating Income climbed 15% to $3.2 billion, reflecting double-digit increases at the Cable, Filmed Entertainment and publishing segments, as well as a gain at the Networks segment. This growth was offset partly by a decline at the AOL segment.
- The company reported net income of $1.1 billion, or 29 cents per share, down from $2.3 billion, or 57 cents per share as a result of an adverse impact of an accounting change.
The firm has spent over $22 billion to repurchase more than 1.2 billion shares, representing more than 25% of outstanding shares since the start of the first program.
- In addition, at the beginning of August, the company announced that the board authorized a new $5 billion share repurchase program, under which it has repurchased $2.2 billion or 119 million shares to date, at an average price per share of $18.64.
- The firm ended the period with net debt of $35.3 billion, up $1.9 billion from 2006, reflecting $5.7 billion in share repurchases, $645 million in dividend payments and $920 million of payments related to securities litigation and government investigations.
- These were offset partly by the $4 billion of free cash flow and $1.8 billion of net investment proceeds which included proceeds from the sales of AOL’s German internet access business, the Tegic Communications business, and the sale of the Parenting Group, most of the Time4 Media titles, that group’s investment in Bookspan, and four non-strategic magazine titles.
- Wayne Pace stepped down as CEO of the company after serving six years.
Segment Highlights:
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Time Warner Cable continued to drive increases in digital video, high speed data, and digital phone subscriptions, adding over 500,000 net RGUs for the 10th quarter in a row.
- Following the acquisition of Adelphia-Comcast last year, Time Warner Cable is moving to roll out commercial phone aggressively next year which is expected to generate strong attractive growth for years to come.
- Revenues rose 25% to $4.0 billion, due to the impact of the Acquired Systems, the consolidation of the Kansas City Pool ($215 million) and 9% growth in the Legacy Systems.
- Subscription revenues increased 25% to $3.8 billion, led by 21% growth in video revenues or $440 million, a 26% increase in high-speed data revenues or $197 million and a 57% rise in voice revenues or $112 million.
Growth was driven by the impact of the Acquired Systems and the consolidation of the Kansas City Pool, as well as the continued penetration of digital video services, video price increases and growth in residential high-speed data and Digital Phone subscribers.
- Advertising revenues increased 24% or $43 million to $221 million, due primarily to the impact of the Acquired Systems and, to a lesser extent, growth in the Legacy Systems by $12 million.
- Operating Income grew 24% or $131 million to $681 million, benefiting from revenue growth, offset partially by increases in operating expenses, primarily video programming and employee expenses.
- Video programming expenses increased by $173 million to $881 million as a result of increases in contractual rates and the expansion of service offerings.
The firm served 13.3 million basic video subscribers and had a net increase of 522,000 revenue generating units (“RGUs”).
- Total RGUs were 31.5 million, with nearly 6.9 million customers (47% of Time Warner Cable’s 14.6 million customer relationships) subscribed to two or more of primary services (video, high-speed data and voice), representing a net addition of 213,000.
- Triple play subscribers totaled 2.1 million or 15% of Time Warner Cable’s customer relationships, due to 220,000 net additions.
- Basic video subscribers decreased a net 83,000, with net reductions of 11,000 basic video subscribers in the Legacy Systems and 72,000 in the Acquired Systems.
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In the film segment, reenues rose 33% to $3.2 billion driven by the theatrical releases of Warner Brothers’ Harry Potter and the Order of the Phoenix and Ocean’s Thirteen and New Line’s Rush Hour 3 and Hairspray.
- Also contributing to the increase were higher licensing fees from television product, due to the initial off-network availabilities of Two and a Half Men, Cold Case and The George Lopez Show.
- This success was augmented by strong home video results, which included the successful world-wide release of Warner Brothers’ 300.
- Operating Income grew 71% or $149 million to $359 million, reflecting higher revenues, offset partly by higher theatrical valuation adjustments.
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In the network segment revenues rose 6% to $2.6 billion, reflecting higher subscription revenues and Turner advertising revenues, as well as a 32% increase in content revenues due to higher ancillary sales of HBO’s original programming.
- This growth was negatively impacted by the closing of the WB network’s operations in September of 2006.
- TNT ranked number one among ad-supported cable networks and total day delivery of its key demographics of adults 18-49 years and adults 25-54 years, while TBS ranked number two in prime time delivery of adults 18-24 years.
- Subscription revenues growth of 7% was due to the higher rates at both Turner and HBO and, to a lesser extent, an increase in subscribers at Turner.
- Adjusted O-EBIDTA rose 6%, driven by the absence of the WB network shutdown costs, losses incurred in the prior year, higher subscription and Turner advertising revenues offset in part by a 21% increase in programming expense and a 12% increase in marketing expense at Turner and HBO.
