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Time Warner Inc. Reports First-Quarter 2008 Results
NEW YORK, Apr 30, 2008 (BUSINESS WIRE) -- Time Warner Inc. (NYSE:TWX) today reported financial results for
its first quarter ended March 31, 2008.
Chief Executive Officer Jeff Bewkes said: "Our results this
quarter, particularly the underlying operating strength at our Cable,
Networks and Filmed Entertainment businesses, gave us the confidence
to reaffirm our full-year business outlook. We've also made
substantial progress on our key structural initiatives. We've decided
that a complete structural separation of Time Warner Cable, under the
right circumstances, is in the best interests of both companies'
shareholders. We're working hard on an agreement with Time Warner
Cable, which we expect to finalize soon. At the same time, we'll
continue to pursue the rest of our aggressive agenda that we believe
will deliver increasing value to our shareholders."
Company Results
In the quarter, Revenues climbed 2% over the same period in 2007
to $11.4 billion, led by increases at the Cable, Networks and Filmed
Entertainment segments.
Adjusted Operating Income before Depreciation and Amortization,
which included $116 million in restructuring charges associated with
the announced operational reorganization of the New Line Cinema
business, declined 1% to $3.1 billion. Declines at the AOL and Filmed
Entertainment segments were offset almost entirely by strong growth at
the Cable, Networks and Publishing segments. Operating Income was down
23% to $1.9 billion, due largely to the absence of the significant
gain on the sale of AOL's Internet access business in Germany in the
prior year quarter.
For the first three months, Cash Provided by Operations was $2.8
billion, and Free Cash Flow totaled $1.8 billion (representing a 58%
conversion rate of Adjusted Operating Income before Depreciation and
Amortization). As of March 31, 2008, Net Debt was $34.6 billion, down
$1.0 billion from $35.6 billion at the end of 2007, due primarily to
the generation of Free Cash Flow.
Diluted Income per Common Share from Continuing Operations was
$0.21 for the three months ended March 31, 2008, compared to $0.30 in
last year's first quarter. The current and prior year amounts included
certain items affecting comparability that are described in detail in
the Consolidated Reported Net Income and Per Share Results section
below. The net impact of such items was to decrease the current year
quarter's results by $0.01 per diluted common share and to increase
the prior year quarter's results by $0.08 per diluted common share.
Segment Performances
Presentation of Financial Information
The schedule below reflects Time Warner's performance for the
three months ended March 31, by line of business (millions).
In the presentation of financial information in this release,
Adjusted Operating Income before Depreciation and Amortization
excludes the impact of noncash impairments of goodwill, intangible and
fixed assets, as well as gains and losses on asset sales and amounts
related to securities litigation and government investigations.
Operating Income includes these amounts in their respective periods.
Refer to the reconciliations of Adjusted Operating Income (Loss)
before Depreciation and Amortization to Operating Income (Loss) before
Depreciation and Amortization and the reconciliations of Operating
Income (Loss) before Depreciation and Amortization to Operating Income
(Loss) in this release for details.
Three Months Ended March 31,
2008 2007
------------- --------------
Revenues:
AOL $ 1,128 $ 1,458
Cable 4,160 3,851
Filmed Entertainment 2,840 2,743
Networks 2,659 2,410
Publishing 1,045 1,048
Intersegment eliminations (415) (326)
------------- --------------
Total Revenues $ 11,417 $ 11,184
============= ==============
Adjusted Operating Income (Loss) before
Depreciation and Amortization:
AOL $ 405 $ 542
Cable 1,402 1,307
Filmed Entertainment(a) 280 332
Networks 958 937
Publishing 145 84
Corporate (99) (105)
Intersegment eliminations (9) 15
------------- --------------
Total Adjusted Operating Income (Loss)
before Depreciation and Amortization $ 3,082 $ 3,112
============= ==============
Operating Income (Loss):
AOL $ 284 $ 1,084
Cable 636 579
Filmed Entertainment(a) 183 243
Networks 874 860
Publishing 93 38
Corporate (110) (116)
Securities litigation expenses, net (4) (163)
Intersegment eliminations (9) 15
------------- --------------
Total Operating Income (Loss) $ 1,947 $ 2,540
============= ==============
(a) For the three months ended March 31, 2008, Adjusted Operating
Income (Loss) before Depreciation and Amortization and Operating
Income (Loss) included restructuring charges of $116 million
related to the operational reorganization of the New Line Cinema
business.
Presented below is a discussion of Time Warner's segments for the
first quarter of 2008. Unless otherwise noted, the dollar amounts in
parentheses represent year-over-year changes.
AOL
Revenues decreased 23% ($330 million) to $1.1 billion, reflecting
a 38% decline ($334 million) in Subscription revenues, offset slightly
by a 1% increase ($3 million) in Advertising revenues. Driving the
decline in Subscription revenues was a decrease in domestic AOL brand
subscribers, resulting from AOL's previously announced strategy to
offer its e-mail and other products free of charge to Internet
consumers, as well as the prior year quarter's sale of AOL's Internet
access business in Germany (approximately $90 million). Advertising
revenues reflected growth in sales of advertising on third-party
Internet sites, fueled in part by acquisitions, and paid-search
advertising, offset mainly by a decline in display advertising. The
prior year quarter's display advertising revenues included a benefit
of approximately $19 million related to a change in an accounting
estimate resulting from more timely system data.
Adjusted Operating Income before Depreciation and Amortization
declined 25% ($137 million) to $405 million, due primarily to lower
Subscription revenues and higher traffic acquisition costs ($52
million), offset partly by reductions in marketing, network and other
expenses. The current and prior year periods also reflected net
restructuring charges of $9 million and $23 million, respectively.
Operating Income decreased 74% ($800 million) to $284 million, due
mainly to the sale of AOL's German Internet access business, which
generated a pretax gain of approximately $670 million in the year-ago
period and lower Adjusted Operating Income before Depreciation and
Amortization.
Highlights
During the quarter, AOL had 110 million average monthly domestic
unique visitors and 52 billion domestic page views, according to
comScore Media Metrix, which translates into 159 average monthly
domestic page views per unique visitor.
As of March 31, 2008, the AOL service had 8.7 million U.S. access
subscribers, a decline of 647,000 from the prior quarter and 3.3
million from the year-ago quarter, reflecting subscriber losses due to
AOL's strategy to prioritize its advertising business.
CABLE (Time Warner Cable)
Revenues grew 8% ($309 million) to $4.2 billion. Subscription
revenues were up 8% ($301 million) to $4.0 billion. Video revenues
climbed 4% ($99 million) to $2.6 billion, driven by continued growth
in digital video services and video price increases. High-speed data
revenues rose 11% ($100 million) to $1.0 billion, fueled mainly by
continued year-over-year residential high-speed data subscriber
growth. Voice revenues increased 39% ($102 million) to $366 million,
reflecting strong Digital Phone subscriber growth. Advertising
revenues grew 4% ($8 million) to $197 million.
Operating Income before Depreciation and Amortization rose 7% ($95
million) to $1.4 billion, benefiting from revenue growth, offset
partially by higher employee, video programming and marketing costs.
Employee costs grew, due primarily to greater headcount, salary
increases and higher equity-based compensation expense, reflecting
mainly the timing of 2008 grants, which were made during the first
quarter as compared to 2007 grants, which were made in the second
quarter. Video programming expenses increased 6% ($49 million) to $929
million, due mainly to higher contractual rates and the expansion of
service offerings, offset partially by lower basic video subscribers.
Marketing costs rose as a result of intensified marketing efforts
during the first quarter of 2008. Additionally, the first quarter of
2007 included $10 million of merger-related and restructuring
expenses.
Operating Income grew 10% ($57 million) to $636 million, due to
the increase in Operating Income before Depreciation and Amortization
and lower amortization expense ($14 million), offset in part by higher
depreciation expense ($52 million). The increase in depreciation
expense was associated primarily with purchases of customer premise
equipment, scalable infrastructure and line extensions (each of which
is driven largely by customer demand) occurring during or subsequent
to the first quarter of 2007.
Highlights
Revenue generating units ("RGUs") reached 33.0
million, reflecting a robust 896,000 net additions. Driving this
increase was strong growth across all RGU categories - including
the best quarterly basic video net additions (55,000) since the first
quarter of 2006. Customer relationships totaled 14.7 million, with
96,000 net additions. Triple Play subscribers surpassed 2.6 million
(or 18% of total customer relationships), benefiting from a record
247,000 net additions.
Selected Subscriber and Penetration Data
Net
Additions
3/31/08 12/31/07 (Declines)
------- -------------- ----------
(in thousands)
Subscriber Data:
Revenue generating units(a) 32,973 32,077 896
Customer relationships(b) 14,722 14,626 96
Double play subscribers(c) 4,748 4,703 45
Triple play subscribers(d) 2,610 2,363 247
Bundled subscribers(e) 7,358 7,066 292
Homes passed(f) 26,624 26,526 98
Basic video subscribers(g) 13,306 13,251 55
Digital video subscribers(h) 8,283 8,022 261
Residential high-speed data
subscribers(i) 7,924 7,620 304
Commercial high-speed data
subscribers(i) 280 280 --
Residential Digital Phone
subscribers(j) 3,170 2,890 280
Commercial Digital Phone
subscribers(j) 10 5 5
Circuit-switched telephone service
subscribers(k) -- 9 (9)
3/31/08 12/31/07
------- --------------
Penetration Data:
Basic video(l) 50.0% 50.0%
Digital video(m) 62.3% 60.5%
Residential high-speed data(n) 30.1% 29.0%
Residential Digital Phone(o) 12.6% 11.7%
Double play(p) 32.3% 32.1%
Triple play(q) 17.7% 16.2%
Bundled(r) 50.0% 48.3%
(a) Revenue generating units represent the total of all basic video,
digital video, high-speed data and voice (including Digital Phone
and circuit-switched telephone service) subscribers.
(b) Customer relationships represent the number of subscribers who
receive at least one level of service, encompassing video, high-
speed data and voice services, without regard to the number of
services purchased. For example, a subscriber who purchases only
high-speed data service and no video service will count as one
customer relationship, and a subscriber who purchases both video
and high-speed data services will also count as only one customer
relationship.
(c) Double play subscriber numbers reflect customers who subscribe to
two of Time Warner Cable's primary services (video, high-speed
data and voice).
(d) Triple play subscriber numbers reflect customers who subscribe to
all three of Time Warner Cable's primary services (video, high-
speed data and voice).
(e) Bundled subscriber numbers reflect customers who subscribe to two
or more of Time Warner Cable's primary services.
(f) Homes passed represent the estimated number of service-ready
single residence homes, apartment and condominium units and
commercial establishments passed by Time Warner Cable's cable
systems without further extending the transmission lines.
(g) Basic video subscriber numbers reflect billable subscribers who
receive at least basic video service.
(h) Digital video subscriber numbers reflect billable subscribers who
receive any level of video service via digital technology.
(i) High-speed data subscriber numbers reflect billable subscribers
who receive Road Runner high-speed data service or any of the
other high-speed data services offered by Time Warner Cable.
Commercial high-speed data subscriber numbers and net additions
for the three months ended March 31, 2008 include an adjustment
that reduced commercial high-speed data subscribers by
approximately 7,000 subscribers primarily as a result of a review
of Time Warner Cable's practices regarding the calculation of
commercial high-speed data subscribers.
(j) Digital Phone subscriber numbers reflect billable subscribers who
receive an IP-based telephony service.
(k) Circuit-switched telephone subscriber numbers reflect billable
subscribers acquired from Comcast Corporation who received
traditional, circuit-switched telephone service. During the first
quarter of 2008, the Company substantially completed the process
of discontinuing the provision of circuit-switched telephone
service in accordance with regulatory requirements. As a result,
as of March 31, 2008, Digital Phone was the only voice service
that the Company offered.
(l) Basic video penetration represents basic video subscribers as a
percentage of homes passed.
(m) Digital video penetration represents digital video subscribers as
a percentage of basic video subscribers.
(n) Residential high-speed data penetration represents residential
high-speed data subscribers as a percentage of estimated high-
speed data service-ready homes passed.
(o) Residential Digital Phone penetration represents residential
Digital Phone subscribers as a percentage of estimated Digital
Phone service-ready homes passed.
(p) Double play penetration represents double play subscribers as a
percentage of customer relationships.
(q) Triple play penetration represents triple play subscribers as a
percentage of customer relationships.
(r) Bundled penetration represents bundled subscribers as a percentage
of customer relationships.
FILMED ENTERTAINMENT (Warner Bros. Entertainment & New Line
Cinema)
Revenues increased 4% ($97 million) to $2.8 billion, reflecting a
strong film slate led by the theatrical and home video performance of
Warner Bros.' I Am Legend, as well as the theatrical performances of
Warner Bros.'10,000 B.C., The Bucket List and Fool's Gold. This growth
was offset partly by lower television license fees related
primarily to the impact of the Writers Guild of America (East and
West) strike.
Operating Income before Depreciation and Amortization decreased
16% ($52 million) to $280 million, due mainly to restructuring charges
of $116 million in the current year quarter related to the announced
operational reorganization of the New Line Cinema business, as well as
an approximate $50 million increase in participation expense
associated with current claims on films released in prior periods.
This decline was offset partially by revenue growth, lower film
valuation adjustments and a decline in print and advertising expenses.
Excluding the restructuring charges of $116 million, Operating Income
before Depreciation and Amortization grew 19%.
Operating Income declined 25% ($60 million) to $183 million, due
largely to the decrease in Operating Income before Depreciation and
Amortization.
Highlights
Warner Home Video ranked #1 in U.S. home video sales for the first
three months of 2008, garnering an industry-leading 20.2% share. The
quarter's most notable home video releases included I Am Legend and
Michael Clayton.
At the 80th Annual Academy Awards(R), Warner Bros.' Michael
Clayton won an Oscar(R) for Best Actress in a Supporting Role, New
Line Cinema's The Golden Compass earned the award for Best Visual
Effects and Picturehouse's La Vie En Rose received Oscars(R) in the
Best Actress in a Leading Role and Best Makeup categories.
NETWORKS (Turner Broadcasting & HBO)
Revenues climbed 10% ($249 million) to $2.7 billion, benefiting
from 10% ($150 million) growth in Subscription revenues and a 13% ($84
million) increase in Advertising revenues. The increase in
Subscription revenues resulted primarily from higher rates at both
Turner and HBO and, to a lesser extent, more subscribers at Turner.
The increase in Advertising revenues was driven primarily by Turner's
domestic entertainment and news networks, reflecting mainly an
increase in advertising units sold, audience growth and higher CPMs
(advertising cost per thousand viewers).
Operating Income before Depreciation and Amortization increased 2%
($21 million) to $958 million, driven largely by higher revenues,
offset in part by higher programming expenses. Programming expenses
increased 23% to $907 million, due primarily to an increase in sports
programming costs at Turner, related particularly to NBA programming,
as well as higher original programming expenses at HBO and Turner. In
addition, programming expenses in the current year quarter included an
impairment of $21 million related to HBO's decision not to proceed
with an original series.
Operating Income rose 2% ($14 million) to $874 million, due
primarily to the increase in Operating Income before Depreciation and
Amortization.
Highlights
In the quarter, TNT ranked #1 among advertising-supported cable
networks in total-day delivery of Adults 18-49 and Adults 25-54. TBS
ranked #1 for the quarter among advertising-supported cable networks
with an all-time first-quarter record in prime-time delivery of Adults
18-34. Eight TBS programs were among advertising-supported cable's top
10 sitcoms for the quarter among Adults 18-49, led by The Office, My
Name Is Earl and Tyler Perry's House of Payne. In the quarter, for the
first time in six years, CNN ranked #1 in prime-time delivery among
cable news networks in its key demographics, Adults 18-49 and Adults
25-54. In addition, truTV scored its best quarter ever in prime-time
delivery among Adults 18-49, Adults 25-54 and Total Viewers. Adult
Swim ranked #1 for the quarter in total day delivery among Adults
18-34.
At the 80th Annual Academy Awards(R), HBO Documentary Films
earned Oscars(R) for Taxi to the Dark Side and Freeheld in the Best
Documentary Feature and Best Documentary Short Subject categories,
respectively. At the 67th Annual Peabody Awards, HBO was honored
for To Die in Jerusalem, while CNN won for CNN Presents: God's
Warriors.
PUBLISHING (Time Inc.)
Revenues of $1.0 billion were essentially flat compared to the
prior year quarter, reflecting higher Subscription revenues ($9
million), offset by lower Other revenues ($7 million) and Advertising
revenues ($4 million). Subscription revenues benefited from higher
newsstand sales at several domestic magazine titles and IPC. Other
revenues were reduced by lower sales at Southern Living at Home.
Advertising revenues decreased due primarily to the impact of the 2007
closures of LIFE and Business 2.0 magazines. Excluding the impact of
the closures, Advertising revenues increased due to higher online
revenues ($20 million), led by People.com and CNNMoney.com, offset in
part by declines in domestic print magazine revenues.
Operating Income before Depreciation and Amortization climbed 73%
($61 million) to $145 million, due primarily to lower restructuring
charges ($25 million), lower overhead expenses and the shutdown of
LIFE magazine in the prior year quarter, as well as increases at
international print magazines. This growth was offset partly by
declines at domestic print magazines.
Operating Income rose from $38 million to $93 million, due mainly
to an increase in Operating Income before Depreciation and
Amortization, offset in part by higher depreciation expense ($7
million).
Highlights
Based on Publishers Information Bureau (PIB) data, Time Inc.'s
2008 industry-leading share of overall domestic print advertising
dollars through March 31, exclusive of newspaper supplements, was
18.4%.
During the quarter, Time Inc. won the top 2007 Magazine Publishers
of America Digital Awards for TIME.com (Website of the Year: News &
Social Topics/ Business & Finance); People.com (Website of the Year:
Entertainment/ Celebrity); SI.com (Website of the Year: Sports); and
FanNation.com from SI.com (Best Online Community).
AdweekMedia's 2008 Hot List named People.com as the Website of the
Year, Real Simple as #2 among its Top 10 Magazines and All You as #6
among its Top 10 under 50 (magazines with earned annual advertising
revenue under $50 million).
CONSOLIDATED REPORTED NET INCOME AND PER SHARE RESULTS
For the three months ended March 31, 2008, Income from Continuing
Operations and Net Income were both $771 million, or $0.21 per diluted
common share. This compares to Income from Continuing Operations in
the prior year quarter of $1.2 billion, or $0.30 per diluted common
share, and Net Income in the prior year quarter of $1.2 billion, or
$0.31 per diluted common share.
Certain pretax items in the current year quarter affected
comparability, including a $26 million noncash impairment charge
related to Warner Bros.' investment in SCi Entertainment Group plc.
Certain pretax items in the prior year quarter similarly affected
comparability, including gains of approximately $670 million from the
sale of AOL's Internet access business in Germany and $146 million
related to the distribution of the assets of Texas and Kansas City
Cable Partners, L.P., offset in part by $163 million in net expenses
associated with securities litigation and government investigations.
In the aggregate, these items affecting comparability had the net
effect of decreasing the current year quarter's Income from Continuing
Operations by $28 million (net of taxes), or $0.01 per diluted common
share, and increasing the prior year quarter by $325 million (net of
taxes), or $0.08 per diluted common share. Excluding such items,
Income from Continuing Operations decreased, reflecting higher
depreciation expense and lower Adjusted Operating Income before
Depreciation and Amortization. Excluding such items, Diluted Income
per Common Share from Continuing Operations was flat in the current
year quarter compared to the prior year quarter.
STOCK REPURCHASE PROGRAM UPDATE
From the announcement of the Company's $5 billion stock repurchase
program on August 1, 2007, through April 29, 2008, the Company
repurchased approximately 154 million shares of common stock for
approximately $2.8 billion, which included approximately 19 million
shares of common stock purchased for approximately $299 million in the
first quarter of 2008. These amounts are unchanged from those reported
in the Company's 2007 earnings release issued on February 6, 2008.
Use of Operating Income (Loss) before Depreciation and
Amortization, Adjusted Operating Income (Loss) before Depreciation and
Amortization and Free Cash Flow
The Company utilizes Operating Income (Loss) before Depreciation
and Amortization, among other measures, to evaluate the performance of
its businesses. The Company also evaluates the performance of its
businesses using Operating Income (Loss) before Depreciation and
Amortization excluding the impact of noncash impairments of goodwill,
intangible and fixed assets, as well as gains and losses on asset
sales, and amounts related to securities litigation and government
investigations (referred to herein as Adjusted Operating Income (Loss)
before Depreciation and Amortization). Both Operating Income (Loss)
before Depreciation and Amortization and Adjusted Operating Income
(Loss) before Depreciation and Amortization are considered important
indicators of the operational strength of the Company's businesses.
Operating Income (Loss) before Depreciation and Amortization
eliminates the uneven effect across all business segments of
considerable amounts of noncash depreciation of tangible assets and
amortization of certain intangible assets that were primarily
recognized in business combinations. A limitation of this measure,
however, is that it does not reflect the periodic costs of certain
capitalized tangible and intangible assets used in generating revenues
in the Company's businesses. Moreover, Adjusted Operating Income
(Loss) before Depreciation and Amortization does not reflect gains and
losses on asset sales or amounts related to securities litigation and
government investigations or any impairment charge related to
goodwill, intangible assets and fixed assets. Management evaluates the
investments in such tangible and intangible assets through other
financial measures, such as capital expenditure budgets, investment
spending levels and return on capital.
Free Cash Flow is Cash Provided by Operations (as defined by U.S.
generally accepted accounting principles) plus payments related to
securities litigation and government investigations (net of any
insurance recoveries) and excess tax benefits from the exercise of
stock options, less cash flow attributable to discontinued operations,
capital expenditures and product development costs, principal payments
on capital leases and partnership distributions, if any. The Company
uses Free Cash Flow to evaluate its businesses and this measure is
considered an important indicator of the Company's liquidity,
including its ability to reduce net debt, make strategic investments,
pay dividends to common shareholders and repurchase stock. A
limitation of this measure, however, is that it does not reflect
payments made in connection with the securities litigation and
government investigations, which reduce liquidity.
Operating Income (Loss) before Depreciation and Amortization,
Adjusted Operating Income (Loss) before Depreciation and Amortization
and Free Cash Flow should be considered in addition to, not as a
substitute for, the Company's Operating Income, Net Income and various
cash flow measures (e.g., Cash Provided by Operations), as well as
other measures of financial performance and liquidity reported in
accordance with U.S. generally accepted accounting principles.
About Time Warner Inc.
Time Warner Inc. is a leading media and entertainment company,
whose businesses include interactive services, cable systems, filmed
entertainment, television networks and publishing.
Information on Time Warner's Business Outlook Release and
Conference Call
Time Warner Inc. issued a separate release today regarding its
updated 2008 full-year business outlook.
The Company's conference call can be heard live at 10:30 am ET on
Wednesday, April 30, 2008. To listen to the call, visit
www.timewarner.com/investors or AOL Keyword: IR.
Information on Time Warner Cable's Releases and Conference Call
Time Warner Cable Inc. issued separate releases today regarding
its first-quarter 2008 results as well as its updated 2008 full-year
business outlook.
Time Warner Cable's conference call can be heard live at 8:30 am
ET on Wednesday, April 30, 2008. To listen to the call, visit
www.timewarnercable.com/investors or AOL Keyword: TWC IR.
Caution Concerning Forward-Looking Statements
This document includes certain forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995.
These statements are based on management's current expectations or
beliefs, and are subject to uncertainty and changes in circumstances.
Actual results may vary materially from those expressed or implied by
the statements herein due to changes in economic, business,
competitive, technological, strategic and/or regulatory factors, and
other factors affecting the operation of the businesses of Time Warner
Inc. More detailed information about these factors may be found in
filings by Time Warner with the Securities and Exchange Commission,
including its most recent Annual Report on Form 10-K and Quarterly
Report on Form 10-Q. Time Warner is under no obligation to, and
expressly disclaims any such obligation to, update or alter its
forward-looking statements, whether as a result of new information,
future events, or otherwise.
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; millions, except per share amounts)
March 31, December 31,
2008 2007
----------- ------------
ASSETS
Current assets
Cash and equivalents $ 1,603 $ 1,516
Receivables, less allowances of $2,110 and
$2,410 6,173 7,296
Inventories 2,076 2,105
Prepaid expenses and other current assets 842 834
Deferred income taxes 717 700
----------- ------------
Total current assets 11,411 12,451
Noncurrent inventories and film costs 5,446 5,304
Investments, including available-for-sale
securities 1,921 1,963
Property, plant and equipment, net 18,011 18,048
Intangible assets subject to amortization,
net 5,043 5,167
Intangible assets not subject to amortization 47,221 47,220
Goodwill 41,817 41,749
Other assets 1,914 1,928
----------- ------------
Total assets $ 132,784 $ 133,830
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,088 $ 1,470
Participations payable 2,535 2,547
Royalties and programming costs payable 1,268 1,253
Deferred revenue 1,331 1,178
Debt due within one year 116 126
Other current liabilities 5,090 5,611
Current liabilities of discontinued
operations 3 8
----------- ------------
Total current liabilities 11,431 12,193
Long-term debt 36,045 37,004
Mandatorily redeemable preferred membership
units issued by a subsidiary 300 300
Deferred income taxes 14,063 13,736
Deferred revenue 511 522
Other liabilities 7,334 7,217
Minority interests 4,388 4,322
Shareholders' equity
Time Warner common stock, $0.01 par value,
4.881 and 4.877 billion shares
issued and 3.578 and 3.593 billion shares
outstanding 49 49
Paid-in-capital 172,453 172,443
Treasury stock, at cost (1.303 and 1.284
billion shares) (25,836) (25,526)
Accumulated other comprehensive income, net 88 149
Accumulated deficit (88,042) (88,579)
----------- ------------
Total shareholders' equity 58,712 58,536
----------- ------------
Total liabilities and shareholders' equity $ 132,784 $ 133,830
=========== ============
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31,
(Unaudited; millions, except per share amounts)
2008 2007
--------- ---------
Revenues:
Subscription $ 6,360 $ 6,239
Advertising 2,024 1,932
Content 2,808 2,779
Other 225 234
--------- ---------
Total revenues 11,417 11,184
Costs of revenues (6,663) (6,496)
Selling, general and administrative (2,478) (2,409)
Amortization of intangible assets (183) (177)
Amounts related to securities litigation and
government investigations (4) (163)
Merger-related, restructuring and shutdown costs (142) (68)
Asset impairments -- (1)
Gains on disposal of assets, net -- 670
--------- ---------
Operating income 1,947 2,540
Interest expense, net (546) (551)
Other income (loss), net (48) 125
Minority interest expense, net (83) (130)
--------- ---------
Income from continuing operations before income
taxes 1,270 1,984
Income tax provision (499) (797)
--------- ---------
Income from continuing operations 771 1,187
Discontinued operations, net of tax -- 16
--------- ---------
Net income $ 771 $ 1,203
========= =========
Basic income per common share from continuing
operations $ 0.22 $ 0.31
Discontinued operations -- --
--------- ---------
Basic net income per common share $ 0.22 $ 0.31
========= =========
Diluted income per common share from continuing
operations $ 0.21 $ 0.30
Discontinued operations -- 0.01
--------- ---------
Diluted net income per common share $ 0.21 $ 0.31
========= =========
Average basic common shares outstanding 3,579.1 3,839.5
========= =========
Average diluted common shares outstanding 3,600.7 3,892.6
========= =========
Cash dividends declared per share of common stock $ 0.0625 $ 0.0550
========= =========
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31,
(Unaudited, millions)
2008 2007
-------- --------
OPERATIONS
Net income(a) $ 771 $ 1,203
Adjustments for noncash and nonoperating items:
Depreciation and amortization 1,131 1,078
Amortization of film and television costs 1,377 1,342
Asset impairments -- 1
(Gain) loss on investments and other assets, net 16 (831)
Equity in losses of investee companies, net of
cash distributions 19 30
Equity-based compensation 108 87
Minority interests 83 130
Deferred income taxes 164 712
Amounts related to securities litigation and
government investigations -- (388)
Changes in operating assets and liabilities, net of
acquisitions (871) (2,024)
Adjustments relating to discontinued operations(a) (2) 59
-------- --------
Cash provided by operations(b) 2,796 1,399
-------- --------
INVESTING ACTIVITIES
Investments in available-for-sale securities -- (86)
Investments and acquisitions, net of cash acquired (258) (12)
Capital expenditures and product development costs (992) (914)
Investment proceeds from available-for-sale
securities -- 10
Other investment proceeds 41 1,142
-------- --------
Cash provided (used) by investing activities (1,209) 140
-------- --------
FINANCING ACTIVITIES
Borrowings 2,253 2,182
Debt repayments (3,205) (2,112)
Proceeds from exercise of stock options 34 242
Excess tax benefit on stock options 2 30
Principal payments on capital leases (10) (18)
Repurchases of common stock (332) (2,089)
Dividends paid (224) (211)
Other financing activities (18) (71)
-------- --------
Cash used by financing activities (1,500) (2,047)
-------- --------
INCREASE (DECREASE) IN CASH AND EQUIVALENTS 87 (508)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 1,516 1,549
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 1,603 $ 1,041
======== ========
(a) The three months ended March 31, 2007 includes net income from
discontinued operations of $16 million. After considering noncash
gains and expenses and working capital-related adjustments
relating to discontinued operations, net operational cash flows
from discontinued operations were $(2) million and $75 million
for the three months ended March 31, 2008 and 2007, respectively.
(b) The three months ended March 31, 2007 includes an approximate $2
million source of cash related to changing the fiscal year end of
certain international operations from November 30 to December 31.
TIME WARNER INC.
RECONCILIATION OF ADJUSTED OPERATING INCOME (LOSS)
BEFORE DEPRECIATION AND
AMORTIZATION TO OPERATING INCOME (LOSS) BEFORE
DEPRECIATION AND AMORTIZATION
(Unaudited, millions)
Three Months
Ended March
31, 2008
Adjusted Operating Amounts
Income/(Loss) Related To Securities
Before Depreciation Asset Litigation & Government
And Amortization Impairments Investigations
------------------- ----------- -----------------------
AOL $ 405 $ -- $ --
Cable 1,402 -- --
Filmed
Entertainment 280 -- --
Networks 958 -- --
Publishing 145 -- --
Corporate(a) (99) -- (4)
Intersegment
elimination (9) -- --
------------------- ----------- -----------------------
Total $ 3,082 $ -- $ (4)
=================== =========== =======================
Three Months Ended March 31, 2008
Operating
Gains/(Losses) Income/(Loss)
From Before Depreciation
Asset Disposals And Amortization
--------------- -------------------
AOL $ -- $ 405
Cable -- 1,402
Filmed Entertainment -- 280
Networks -- 958
Publishing -- 145
Corporate(a) -- (103)
Intersegment elimination -- (9)
--------------- -------------------
Total $ -- $ 3,078
=============== ===================
Three Months
Ended March
31, 2007
Adjusted Operating Amounts
Income/(Loss) Related To Securities
Before Depreciation Asset Litigation & Government
And Amortization Impairments Investigations
------------------- ----------- -----------------------
AOL(b) $ 542 $ (1) $ --
Cable 1,307 -- --
Filmed
Entertainment 332 -- --
Networks 937 -- --
Publishing 84 -- --
Corporate(a) (105) -- (163)
Intersegment
elimination 15 -- --
------------------- ----------- -----------------------
Total $ 3,112 $ (1) $ (163)
=================== =========== =======================
Three Months Ended March 31, 2007
Operating
Gains/(Losses) Income/(Loss)
From Before Depreciation
Asset Disposals And Amortization
--------------- -------------------
AOL(b) $ 670 $ 1,211
Cable -- 1,307
Filmed Entertainment -- 332
Networks -- 937
Publishing -- 84
Corporate(a) -- (268)
Intersegment elimination -- 15
--------------- -------------------
Total $ 670 $ 3,618
=============== ===================
(a) For the three months ended March 31, 2008, Operating Income before
Depreciation and Amortization includes $4 million in net expenses
related to securities litigation and government investigations.
For the three months ended March 31, 2007, Operating Income
before Depreciation and Amortization includes $152 million in
legal reserves related to securities litigation and $11 million
in net expenses related to securities litigation and government
investigations.
(b) For the three months ended March 31, 2007, Operating Income before
Depreciation and Amortization includes a pretax gain of
approximately $670 million on the sale of AOL's German access
business and a $1 million noncash asset impairment charge.
TIME WARNER INC.
RECONCILIATION OF OPERATING INCOME (LOSS) BEFORE
DEPRECIATION
AND AMORTIZATION TO OPERATING INCOME (LOSS)
(Unaudited, millions)
Three Months
Ended March
31, 2008
Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
-------------- ------------ ------------ --------------
AOL $ 405 $ (83) $ (38) $ 284
Cable 1,402 (701) (65) 636
Filmed
Entertainment 280 (41) (56) 183
Networks 958 (78) (6) 874
Publishing 145 (34) (18) 93
Corporate(a) (103) (11) -- (114)
Intersegment
elimination (9) -- -- (9)
-------------- ------------ ------------ --------------
Total $ 3,078 $ (948) $ (183) $ 1,947
============== ============ ============ ==============
Three Months
Ended March
31, 2007
Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
-------------- ------------ ------------ --------------
AOL(b) $ 1,211 $ (105) $ (22) $ 1,084
Cable 1,307 (649) (79) 579
Filmed
Entertainment 332 (35) (54) 243
Networks 937 (74) (3) 860
Publishing 84 (27) (19) 38
Corporate(a) (268) (11) -- (279)
Intersegment
elimination 15 -- -- 15
-------------- ------------ ------------ --------------
Total $ 3,618 $ (901) $ (177) $ 2,540
============== ============ ============ ==============
(a) For the three months ended March 31, 2008, Operating Income before
Depreciation and Amortization and Operating Income include $4
million in net expenses related to securities litigation and
government investigations. For the three months ended March 31,
2007, Operating Income before Depreciation and Amortization and
Operating Income include $152 million in legal reserves related
to securities litigation and $11 million in net expenses related
to securities litigation and government investigations.
(b) For the three months ended March 31, 2007, Operating Income before
Depreciation and Amortization and Operating Income include a
pretax gain of approximately $670 million on the sale of AOL's
German access business and a $1 million noncash asset impairment
charge.
TIME WARNER INC.
RECONCILIATION OF CASH PROVIDED BY OPERATIONS TO FREE CASH FLOW
(Unaudited, millions)
Three Months Ended
------------------
3/31/08 3/31/07
--------- --------
Cash provided by operations $ 2,796 $ 1,399
Less cash provided by discontinued operations:
Net income -- (16)
Other changes 2 (59)
--------- --------
Cash provided by continuing operations 2,798 1,324
Add payments related to securities litigation and
government investigations 4 551
Add excess tax benefits on stock options 2 30
Less capital expenditures and product development
costs (992) (914)
Less principal payments on capital leases (10) (18)
--------- --------
Free Cash Flow(a) $ 1,802 $ 973
========= ========
(a) Free Cash Flow is cash provided by operations (as defined by U.S.
generally accepted accounting principles) plus payments related
to securities litigation and government investigations (net of
any insurance recoveries) and excess tax benefits from the
exercise of stock options, less cash flow attributable to
discontinued operations, capital expenditures and product
development costs, principal payments on capital leases, and
partnership distributions, if any.
SOURCE: Time Warner Inc.
Time Warner Inc. Corporate Communications Edward Adler, 212-484-6630 Keith Cocozza, 212-484-7482 or Investor Relations Doug Shapiro, 212-484-8926 Chris Clipper, 212-484-6297 Monica Gould, 212-484-8206
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