Time Warner Keeps Up Double-Digit Growth

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Time Warner Inc., the biggest cable MSO and the first major
operator to report fourth-quarter results, once again started the earnings parade with a
bang.

Helped along by double-digit cash-flow growth at its cable
systems and cable networks, Time Warner said its net income in the quarter hit $216
million, more than three times the $59 million that it reported in the same period a year
ago. Those results included gains from selling Hasbro Inc. shares and from some
cable-system sales.

Time Warner's cash flow rose 18 percent in the
quarter, including those one-time gains, to $1.65 billion from $1.4 billion a year ago.
For the year, Time Warner Inc.'s and Time Warner Entertainment's combined cash
flow rose 25 percent, to $5.4 billion, again including one-time gains such as $250 million
before tax from selling TWE's 58 percent stake in E! Entertainment Television.

Along with the cable results, Time Warner chairman Gerald
Levin highlighted television production, which bolstered Warner Bros. at a time when
theatrical box-office results weren't great.

'We are not sure where we buried The Postman,'
Cowen & Co. analyst Harold Vogel said, referring to the Kevin Costner bomb. Cash flow
at the studio rose 10 percent, to $135 million from $123 million in the same period a year
ago.

Analysts said Levin claimed that the success of ER
and other TV shows is creating a new 'golden age of television' at the studio.
Syndication cash from ER, Friends and TheDrew Carey Show should
take some of the variability out of the studio business, NationsBanc Montgomery Securities
analyst Mark Todtfeld said.

The music business continues to struggle, with cash flow
dropping to $174 million from $290 million a year ago. But Time Warner executives told
analysts that they expect cash-flow comparison to turn positive later this year, after
releases from Eric Clapton, Madonna and others.

Time Warner 'is a company with very strong assets, and
it continues to prove that it has very strong assets, some of which, like the
motion-pictures and music units, don't always produce up to their full
potential,' Sanford C. Bernstein & Co. analyst Tom Wolzien said. Overall, the
company is delivering solid numbers, even after sifting through one-time gains, he added.

'They had a legit 16 percent growth rate last year on
an operating basis. That's better than [The Walt] Disney [Co.] did,' Wolzien
said.

Levin spoke of maintaining 16 percent to 18 percent
earnings growth over the next three years, analysts said. He delivered free cash flow last
year, and he emphasized that by capping capital spending and cutting internal and
acquisition costs, that trend should continue. Time Warner paid off $850 million in debt
last year, and it has been buying back stock, even at current prices, Todtfeld said. Time
Warner's share price rose last Monday and Tuesday, from $63.81 at Friday's close
to $67.50 Tuesday.

At Time Warner Cable, quarterly cash flow rose 44 percent,
to $757 million from $526 million. Internal growth (excluding sales) was 17 percent,
driven by rising basic-cable, pay-per-view and advertising revenue. For the year, cash
flow rose 23 percent, to $2.5 billion from $2 billion, including a 16 percent internal
rise.

Home Box Office's cash flow rose 18 percent, to $107
million from $91 million in the same period a year ago. Cash flow rose by a similar
percentage for the full year, to $413 million from $350 million, as HBO and Cinemax added
a total of 1.2 million subscribers, hitting 33.6 million. Direct-broadcast satellite sales
are driving much of HBO's growth, although the cable slump -- driven largely by
Tele-Communications Inc.'s problems in this area -- appear to be reversing with
TCI's turnaround.

The Turner Broadcasting System Inc. cable-networks
division's fourth-quarter cash flow rose 16 percent, to $188 million from $162
million. Cash flow at the unit rose 21 percent for the year, to $660 million from a pro
forma $547 million, driven by advertising revenue gains at Turner Network Television, TBS
Superstation, Cartoon Network and Cable News Network and increased subscription-fee gains
at TNT, Cartoon, CNN and Turner Classic Movies.

The Time Inc. publishing division's cash flow rose 14
percent, to $228 million from $200 million in the quarter.

Also last week, Premier Parks Inc. agreed to buy theme-park
company Six Flags Entertainment Corp. from co-owners Time Warner (49 percent) and an
investment firm headed by Boston Ventures for $1.9 billion, which was higher than what
some analysts had valued the company at.

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