Time Warner Inc. (TWX)

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Time Warner (TWX)

Q4 2010 Earnings Call

February 02, 2011 10:30 am ET

Executives

John Martin - Chierf Administrative Officer, Chief Financial Officer and Executive Vice President

Jeffrey Bewkes - Chairman and Chief Executive Officer

Douglas Shapiro - Head of Investor Relations

Analysts

Jessica Cohen - BofA Merrill Lynch

Spencer Wang - Crédit Suisse AG

Brandon Ross

Michael Nathanson - Sanford Bernstein

Benjamin Swinburne - Morgan Stanley

John Janedis - UBS Investment Bank

Douglas Mitchelson - Deutsche Bank AG

Tuna Amobi - S&P Equity Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Q4 and Full Year 2010 Time Warner Earnings Conference Call. [Operator Instructions] I would now like to turn the presentation over to your host for today's conference, Mr. Doug Shapiro, Senior Vice President, Investor Relations. Please proceed.

Douglas Shapiro

Thanks. This morning, we issued two press releases, one detailing our results for the fourth quarter and full year, and the other providing our 2011 business outlook.

Before we begin, there are two items I need to cover. First, we refer to certain non-GAAP financial measures. Schedules setting out reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are included in our earnings release and trending schedules. These reconciliations are available on our website at timewarner.com/investors. Reconciliations of our expected future financial performance are also included in the business outlook release that's available on our site.

And second, today's announcement includes certain forward-looking statements, which are based on management's current expectations. Actual results may vary materially from those expressed or implied by these statements due to various factors. These factors are discussed in detail in Time Warner's SEC filings, including its most recent annual report on Form 10-K and subsequent quarterly report on Form 10-Q. Time Warner is under no obligation and, in fact, expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise.

Thanks, and let me turn the call over to Jeff.

Jeffrey Bewkes

Thanks, Doug, and good morning. The impressive results we posted today reflect the continuation of a multiyear plan we put in place a few years ago. In 2008, we shifted our focus to become a pure content company and moved to permanently reduce our cost base.

In 2009, we successfully navigated the economic downturn. And in that year, we further improved the company's operating efficiency, strengthened our balance sheet and grew adjusted earnings per share almost 30%. This last year, 2010, we significantly accelerated our pace in three important areas: Growth, investment and returns. We posted our highest revenue growth in years, and we grew adjusted operating income well ahead of plan.

We increased adjusted EPS by over 30%, putting us up 70% over the past two years. We invested substantially to strengthen the long-term competitive position and growth profile of our businesses, and we returned $3 billion to our shareholders in the form of dividends and stock repurchases. That's more than 100% of our free cash flow.

In 2011, we'll continue this course, grow, invest and return. We're even more confident, so we're going to take even more aggressive steps. This year, we intend to again deliver strong financial results. As you saw in our outlook release this morning, we expect to grow adjusted EPS in the low-teens in 2011.

Assuming we achieve that, it means we'll have almost doubled our earnings in three years. At the same time, we'll ramp up our investment in programming, production and marketing even more than we did last year. And this morning, as you saw, we announced that we are raising our dividend 11%, and we're increasing our repurchase authorization to $5 billion. That paves the way for us to return even more capital to our shareholders this year.

We'll achieve these goals by focusing on the four strategic objectives that we've discussed with you before: First, invest aggressively to use our competitive advantages in making great content; second, develop and accelerate new business models that harness technology to improve both the consumer experience and our economics; third, expand internationally in key territories; and fourth, improve both our operating and capital efficiency. For example, while we plan to invest more in our businesses this year, we'll fund that by keeping a lid on our other costs.

So what does that mean in practice at each of our four businesses? At Turner, we'll keep acquiring and developing the high-quality programming that drives audiences, bolsters our brands and attracts advertisers. This year, that means sports programming like the NCAA men's basketball tournament. It means the top original programming on cable including returning hits like Rizzoli & Isles and new shows like Falling Skies from Steven Spielberg. It means acquiring blockbusters like The Big Bang Theory and our new late-night powerhouse, Conan, which is the number one late-night talk show during the fourth quarter.

This emphasis on high-quality programming increases the value we deliver to both advertisers and to our affiliates. As advertisers shift dollars away from broadcast to seek more efficient products, they're increasingly looking to Turner. That was evident this quarter when Turner's domestic entertainment networks grew ad revenue in the high-teens organically. And it was evident in the upfront last year when Turner's CPM growth exceeded all the broadcast networks, and that's tangible evidence that the CPM gap is narrowing.

With healthy advertising climate, our strong programming lineups, the strength of our brands and the appeal of the environments we offer, we're confident that we'll post strong advertising growth again this year. Our affiliates are also increasingly recognizing the value of the must-have programming that we air. As you know, affiliate fees are one of the most important growth drivers for our company.

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