Cable Operators

Cable Boosts Time Warner

8/04/2006 8:00 PM Eastern

Time Warner Inc. continued the momentum shown by Comcast Corp. last week, reporting stronger than expected second-quarter results. The gains were driven mainly its cable operations.

Time Warner reported revenue of $10.7 billion (up 1%) and adjusted operating income before depreciation and amortization (AOIBDA, a measure of cash flow) of $2.7 billion (up 7%).

Time Warner Cable completed its $16.9 billion joint acquisition of Adelphia Communications Corp. with Comcast on July 31. The second-quarter results did not include Adelphia, but Time Warner chairman and CEO Richard Parsons said the acquisition will serve to make a strong division even stronger.

Revenue at the cable operations rose 15%, to $2.7 billion, and AOIBDA increased 16%, to $1 billion. Basic cable subscribers rose by 18,000 customers in the period (its fourth consecutive quarter of basic-customer growth); digital-cable subscribers rose by 117,000 (its largest second-quarter increase since 2002); high-speed Internet customers were up 230,000; and digital phone subscribers increased by 234,000.

Time Warner's results followed a strong report from Comcast on July 27: 11% revenue growth and 12% operating cash flow growth.

Beyond the Adelphia transaction, Time Warner said it was notified Comcast wants to dissolve the two companies' 50-50 partnerships in Kansas City and Texas. So, as of Aug. 1, Time Warner assumed full control of systems in Kansas City, Southwest Texas and New Mexico, while Comcast assumed control of systems in Houston. Time Warner also gets $600 million in cash.

Under the partnership agreement, each party had the option of triggering a dissolution, with the remaining party allowed to choose from two pools of subscribers — the Kansas City pool, with 789,000 subscribers; and the Houston pool, with 790,000 customers.

Time Warner had been managing both groups of systems. In Houston, Comcast gains a market it has not managed in the past. Excluded from the shuffle were about 100,000 subscribers in systems in the Kansas City area, which Comcast will continue to own and operate.

During an Aug. 2 conference call with analysts, Parsons said the main factor in picking the Kansas City systems was Comcast's offer to assume all of the debt of both partnerships — about $2 billion, according to the 10-Q.

“Had they made a different allocation, we might have made a different judgment,” Parsons said.

At Time Warner's cable networks — including Home Box Office, Turner Broadcasting System Inc. and Court TV — revenue rose 9%, to $2.7 billion. AOIBDA increased 9%, to $696 million.

Time Warner Cable Results
Cable operations drove second quarter results at Time Warner for the second quarter. A snapshot of the division's performance:
Source: Company reports.
Revenue$2.7 billion15%
AOIBDA$1 billion16%
Basic subscribers11.1 million18,000
Digital subscribers5.8 million171,000
High-speed Internet subscribers5.4 million230,000
Digital telephone subscribers1.6 million234,000

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