- Revenues increased 7%, or $284 million, to $4.3 billion.
- The subscription revenues grew 7%, or $277 million, to $4.1 billion.
- Video revenues firmed 2%, or $57 million, to $2.6 billion, driven by continued growth in digital video services and video price increases, offset partly by a decrease in pay-per-view event revenues.
- High-speed data revenues rose 12%, or $108 million, to $1 billion as a result of continued year-over-year higher-speed data growth.
- Voice revenues gained 39%, or $112 million, to $397 million, reflecting a net increase in Digital Phone subscribers.
- The advertising revenues grew 3%, or $7 million, to $233 million.
- The adjusted operating income before depreciation and amortization rose 9%, or $126 million to $1.6 billion.
- This was helped by revenue growth though partly offset by higher video programming, employee, voice and marketing costs.
- The video programming expenses increased 6% to $939 million due to contractual rate increases and an increase in the percentage of basic video subscribers who also subscribe to expanded tiers of video services.
- The employee costs increased, resulting mainly from headcount and salary increases, offset partly by lower equity-based compensation expense, due mainly to the timing of 2008 grants.
- The voice costs rose 12%, or $23 million, reflecting mainly growth in Digital Phone subscribers, offset partially by a decline in per-subscriber connectivity costs.
- The marketing expenses grew as a result of intensified marketing efforts.
- In addition, the prior year period included $6 million of merger-related and restructuring expenses.
- Operating income gained 4%, or $27 million, to $738 million.
- The rise was due to higher adjusted operating income before depreciation and amortization, offset partly by increased depreciation expense ($53 million) and a non-cash impairment of certain non-core cable systems held for sale ($45 million).
- The revenue generating units (RGUs) exceeded 33.6 million.
- This reflects net additions of 656,000, a record for any second quarter.
- The additions were driven by year-over-year improvement in net additions in all RGU categories.
- Customer relationships totaled 14.7 million, and Triple Play subscribers surpassed 2.8 million (or 19% of total customer relationships), benefiting from 214,000 net additions during the second quarter.
Filmed Entertainment:
- Revenues advanced 14%, or $311 million, to $2.6 billion led by strong home video performances of Warner Bros.’ I Am Legend, The Bucket List, 10,000 B.C. and Fool’s Gold as well as higher international television licensing fees on theatrical product.
- Also contributing to the increase was growth in interactive video games, including the release of LEGO Indiana Jones.
- Operating income before depreciation and amortization increased 13% ($22 million) to $196 million, reflecting strong revenue growth, higher contributions from television product and lower film valuation adjustments, offset partially by higher print and advertising expenses.
- Operating income grew 16% ($13 million) to $94 million, due mainly to an increase in operating income before depreciation and amortization.
Networks:
- Revenues rose 9% ($225 million) to $2.8 billion, with growth of 10% ($158 million) in subscription revenues and 11% ($89 million) in advertising revenues, offset partly by an 11% decline ($23 million) in Content revenues.
- Subscription revenues benefited primarily from higher rates at both Turner and HBO and, to a lesser extent, more subscribers for Turner’s networks, as well as the impact of international acquisitions.
- Driving the increase in Advertising revenues were Turner’s domestic entertainment and news networks, reflecting mainly audience growth and higher CPMs (advertising rates per thousand viewers).
- The adjusted operating income before depreciation and amortization grew 15% ($114 million) to $860 million.
- The rise was fueled by increased revenues, offset in part by higher programming expenses.
- The programming expenses rose 8% to $1.1 billion, due primarily to an increase in sports programming costs at Turner, related to NBA programming, higher original programming costs at both HBO and Turner, as well as programming costs associated with international acquisitions.
- The growth was also driven by the absence of $16 million of restructuring and severance charges in the prior year quarter at HBO.
- Operating income climbed 18%, or $115 million, to $749 million, resulting mainly from the increase in adjusted operating income before depreciation and amortization.
- The current year quarter included an $18 million non-cash impairment of GameTap as a result of Turner’s decision to sell its on-line video game business.
- The prior year quarter included a $34 million non-cash impairment of the Court TV tradename as a result of re-branding the network’s name to truTV.
Publishing:
- Revenues declined 6%, or $77 million, to $1.2 billion.
- The dip is a reflection of a 9% decrease ($66 million) in advertising revenues and a 10% decline ($14 million) in Other revenues.
- The declines were partly offset by a 1% increase ($4 million) in subscription revenues.
- The decrease in advertising revenues was primarily due to reduced domestic print magazine revenues and declines in custom publishing revenues, partially offset by higher onlne revenues ($19 million), led by People.com, Time.com and CNNMoney.com.
- Other revenues were reduced by lower sales at Synapse and Southern Living at Home.
- Operating income before depreciation and amortization decreased 11% ($33 million) to $269 million.
- This was largely due to the decrease in advertising revenues, offset partly by increases at international print magazines, lower overhead expenses and the impact of the 2007 closures at LIFE and Business 2.0 magazines.
- Operating income declined 15%, or $38 million, to $218 million.
- This resulted mainly from a decrease in operating income before depreciation and amortization.
Full Year 2008 Guidance:
- The company expects that 2008 full year growth rate in adjusted operating income before depreciation and amortization will be in the range of 7% to 9%, off a base of $12.9 billion in 2007.
- The management anticipates that full year growth rate is likely to come in at the low end of this range.
- The company re-affirmed its expectation that the 2008 full year free cash flow will be at or above $4.5 billion.
Key questions and answers from the second quarter fiscal 2008 earnings call conducted by TimeWarner Inc. on August 6, 2008.
Jason Bazinet (Citigroup): You have completed the economic split between the access and audience business opening you up to strategic options. Could you articulate any alternative to that strategic path that the street is focused on as the most likely outcome?
Jeffrey L. Bewkes: We will assess all of the options and all of you have written or read about every conceivable one. One that ought to be thought about as a benchmark against any kind of strategic change in our position in access would just be operating it and seeing if the cash flow from that operation is superior to any yield we can get putting it into alignment with some of the usual suspects that get mentioned.
We’re going to view it objectively as a business question and what we are really trying to say is that we have now organized it from an operational point of view to provide the best competitive results out of the access business assuming it operates under its current structure. Secondly, we have organized it to give us the flexibility to do whatever is in the best interest to maximize the value.
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