On Nov. 1, media and communications powerhouse Time Warner (NYSE:TWX) released Q3 2006 earnings for the period ended Sept. 30.

  • The dramatically lower cash balance and bigger debt load both result partly from buying cable systems from Adelphia and Comcast (NASDAQ:CMCSA) over the past year. But those new additions also helped with Time Warner's impressive profit boost.

  • Another generous chunk of debt went into share buybacks. However, the stock is trading near four-year highs now, which makes me think that further buybacks would be a less appropriate use of funds.

  • With nearly $1.5 billion in quarterly FCF, Time Warner can afford to take on some debt, with confidence that it can pay the loans back in short order.

(Figures in millions, except per-share data)

Income Statement Highlights

Q3 2006

Q3 2005

Change

Sales

$10,912.0

$10,244.0

6.5%

Net Profit

$2,322.0

$853.0

172.2%

EPS

$0.57

$0.18

216.7%

Diluted Shares

4084.4

4723.6

(13.5%)



Get back to basics with a look at the income statement.

Margin Checkup

Q3 2006

Q3 2005

Change*

Gross Margin

42.71%

42.32%

0.39

Operating Margin

15.28%

16.10%

(0.82)

Net Margin

21.28%

8.33%

12.95

*Expressed in percentage points.

Margins are the earnings engine. See how they work.

Balance Sheet Highlights

Assets

Q3 2006

Q3 2005

Change

Cash + ST Invest.

$1,178.0

$7,959.0

(85.2%)

Accounts Rec.

$5,762.0

$5,260.0

9.5%

Inventory

$1,769.0

$1,720.0

2.8%



Liabilities

Q3 2006

Q3 2005

Change

Accounts Payable

$1,072.0

$1,273.0

(15.8%)

Long-Term Debt

$33,255.0

$18,739.0

77.5%



Learn the ways of the balance sheet.

Cash Flow Highlights

Q3 2006

Q3 2005

Change

Cash From Ops.

$2,413.0

$2,085.0

15.7%

Capital Expenditures

$941.0

$705.0

33.5%

Free Cash Flow

$1,472.0

$1,380.0

6.7%



Find out why Fools always follow the money.

Related Companies:

  • Disney (NYSE:DIS)
  • News Corp (NYSE:NWS)
  • Yahoo! (NASDAQ:YHOO)
  • Google (NASDAQ:GOOG)

Related Foolishness:

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At the time of publication, Fool contributor Anders Bylund was a Disney shareholder but had no other position in any company mentioned. Fool rules are here .