Cable Operators

Keeping ‘Fred Cash’ In Focus

12/20/2010 12:01 AM Eastern

Time Warner Cable has been a virtual free-cash-flow machine for the past three years, generating a combined $3.7 billion
in 2008 and 2009 and could reach as much as $2.3 billion
in 2010, according to some analysts.

Generating that amount of free cash — cash flow after
interest payments and capital expenditures are made
— has allowed Time Warner Cable to issue the biggest
dividend among publicly traded cable operators (its 3.7%
yield is tops in the industry) as well as initiate a $4 billion
stock-repurchase program.

As chief financial officer, Rob Marcus has been a big
proponent of free cash flow — he has been touting the
metric to investors since he became CFO in 2008.

Free cash flow also has been the metric that many
analysts point to in determining the health of a cable
business, although Marcus said it shouldn’t be the only one.

“One thing that is a little tricky about free cash flow is
that the capital spent in any given period reduces free cash
flow on a dollar-for-dollar basis, but often doesn’t contribute
to generating incremental revenue until some later point in
time,” Marcus said. “That’s why you also want to look at
metrics that spread the cost of capital investment over the
life of the particular asset .”

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