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Time Warner Inc. Reports Third-Quarter 2012 Results

Stock Repurchase Program Update

From January 1, 2012 through November 2, 2012, the Company repurchased approximately 59 million shares of common stock for approximately $2.3 billion. These amounts reflect the purchase of approximately 20 million shares of common stock for approximately $869 million since the amounts reported in the Company’s second quarter earnings release issued on August 1, 2012. As of November 2, 2012, approximately $2.1 billion remained under the Company’s stock repurchase authorization.

Segment Performance

Presentation of Financial Information

The schedule below reflects Time Warner’s financial performance for the three and nine months ended September 30 by line of business (millions).

       

 

 

Three Months Ended Sept. 30,

Nine Months Ended Sept. 30,

 

2012

2011

2012

2011

Revenues:

 

 

Networks $ 3,339 $ 3,208 $ 10,539 $ 10,155
Film and TV Entertainment (a) 2,897 3,297 8,295 8,748
Publishing 838 889 2,469 2,633
Intersegment eliminations (232 ) (326 ) (738 ) (755 )

Total Revenues

$ 6,842   $ 7,068   $ 20,565   $ 20,781  
 

Adjusted Operating Income (Loss) (b) :

Networks $ 1,223 $ 1,093 $ 3,545 $ 3,287
Film and TV Entertainment (a) 330 528 682 846
Publishing 126 124 262 356
Corporate (85 ) (78 ) (263 ) (253 )
Intersegment eliminations (12 ) (62 ) (80 ) (77 )

Total Adjusted Operating Income

$ 1,582   $ 1,605   $ 4,146   $ 4,159  
 

Operating Income (Loss) (b) :

Networks (c)

$ 1,224 $ 1,092 $ 3,341 $ 3,278
Film and TV Entertainment (a) 328 524 676 836
Publishing 127 124 220 356
Corporate (86 ) (82 ) (266 ) (261 )
Intersegment eliminations (12 ) (62 ) (80 ) (77 )

Total Operating Income

$ 1,581   $ 1,596   $ 3,891   $ 4,132  
 

Depreciation and Amortization:

Networks $ 91 $ 90 $ 265 $ 275
Film and TV Entertainment (a) 92 95 276 285
Publishing 31 36 96 108
Corporate

 

8

 

 

7

  21   21  

Total Depreciation and Amortization

$ 222   $ 228   $

658

 

$

689  
 

(a)

 

Effective for the first quarter of 2012, Time Warner changed the name of its Filmed Entertainment reportable segment to Film and TV Entertainment. This change did not affect the composition of the segment; accordingly, all prior period financial information related to this reportable segment was unaffected.

(b)

Adjusted Operating Income (Loss) and Operating Income (Loss) for the three and nine months ended September 30, 2012 and 2011 included restructuring and severance costs of (millions):

 
   

Three Months Ended Sept. 30,

 

Nine Months Ended Sept. 30,

2012

 

2011

2012

 

2011

 
Networks $ (18 ) $ (16 ) $ (40 ) $ (34 )
Film and TV Entertainment (11 ) (11 ) (19 ) (33 )
Publishing (6 ) (3 ) (24 ) (15 )
Corporate

-

  -     (1 )   (2 )
 

Total Restructuring and Severance Costs

$ (35 ) $ (30 ) $ (84 ) $ (84 )
 

(c)

 

Operating Income for the nine months ended September 30, 2012 included $199 million in charges related to the shutdown of Turner’s general entertainment network, Imagine, in India and TNT television operations in Turkey.

 

Presented below is a discussion of the performance of Time Warner’s segments for the third quarter of 2012. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.

NETWORKS (Turner Broadcasting and HBO)

Revenues rose 4% ($131 million) to $3.3 billion, benefitting from growth of 7% ($137 million) in Subscription revenues, which was partially offset by a decline of 1% ($9 million) in Advertising revenues. The increase in Subscription revenues resulted mainly from higher domestic rates and, to a lesser extent, an increase in domestic subscribers at HBO and international growth. Advertising revenues benefitted from growth at Turner’s domestic entertainment networks, due principally to higher pricing, offset in part by the timing of certain sports events. Domestic growth was more than offset by decreases at Turner’s international networks, which were due primarily to the negative effect of foreign currency exchange rates and the shutdown of Turner’s general entertainment network, Imagine, in India and TNT television operations in Turkey, which occurred in the first half of 2012.

Adjusted Operating Income increased 12% ($130 million) to $1.2 billion due to higher revenues. Programming expenses were essentially flat compared to the prior year’s quarter as the benefits from the shutdown of Imagine and TNT television operations in Turkey and the timing of sports events were offset by higher costs at HBO due to the timing of original programming. Operating Income also increased 12% ($132 million) to $1.2 billion.

TNT series The Closer, Rizzoli & Isles, and Major Crimes ranked as cable’s top three original primetime series in the third quarter among total viewers. At TBS, total primetime viewers were up 45% over last year’s quarter. Cartoon Network and Adult Swim were the #1 ad-supported cable networks in total day delivery among boys 6-11 and adults 18-34, respectively. In October, Turner entered into an agreement to extend its relationship with Major League Baseball through 2021, providing Turner with television rights and expanded digital rights to both postseason and regular season games.

In September, HBO received 23 Primetime Emmy Awards, the most of any network for the eleventh consecutive year, with Game of Thrones receiving six awards, Game Change receiving five awards and Boardwalk Empire receiving four awards. During the quarter, HBO announced that, together with Parsifal International, it plans to launch HBO Nordic, a multi-platform premium television service, in Sweden, Norway, Finland and Denmark.

FILM AND TV ENTERTAINMENT (Warner Bros.)

Revenues decreased 12% ($400 million) to $2.9 billion, due mainly to difficult comparisons to the year ago period. The prior year’s quarter included revenues from the theatrical release of Harry Potter and the Deathly Hallows: Part 2 and television license fees from the off-network availabilities of The Big Bang Theory and Friends. This decline was offset in part by the global theatrical performance of The Dark Knight Rises and an increase in subscription video-on-demand revenue.

Adjusted Operating Income declined 38% ($198 million) to $330 million, due mainly to lower revenues, offset partially by lower print and advertising costs due to fewer theatrical releases in the quarter. Operating Income decreased 37% ($196 million) to $328 million.

For the first ten months of 2012, Warner Bros. achieved the number two spot in domestic box office share with $1.4 billion, led by the releases of The Dark Knight Rises, Magic Mike and Journey 2: The Mysterious Island. The Dark Knight Rises has surpassed $1 billion at the global box office during its theatrical run, exceeding its predecessor The Dark Knight. Warner Bros. is the leading supplier of programming to the broadcast networks, with 25 primetime series announced for the 2012–2013 season. Including cable, animated and first-run syndicated series, Warner Bros. is producing nearly 60 programs.

PUBLISHING (Time Inc.)

Revenues declined 6% ($51 million) to $838 million, reflecting decreases of 6% ($19 million) in Subscription revenues, 5% ($25 million) in Advertising revenues and 18% ($17 million) in Other revenues. The decrease in Subscription revenues was due primarily to lower domestic and international newsstand sales. Advertising revenues decreased due to lower magazine advertising demand, partly offset by revenues from SI.com and Golf.com, the management of which was transferred from Turner to Time Inc. during the second quarter of 2012. The transfer of SI.com and Golf.com benefitted Advertising revenues and negatively impacted Other revenues by similar amounts.

Adjusted Operating Income increased 2% ($2 million) to $126 million as a decrease in expenses due to lower production costs and cost savings initiatives offset the decline in revenues. Operating Income also increased 2% ($3 million) to $127 million.

During the first nine months of 2012, Time Inc. maintained its leading share of overall domestic magazine advertising with 21.5% (Publishers Information Bureau data). In October, Advertising Age named In Style and FORTUNE to its A-List, which recognizes magazine brands that have demonstrated excellence within the industry over the past year.

CONSOLIDATED NET INCOME AND PER SHARE RESULTS

Adjusted EPS was $0.86 for the three months ended September 30, 2012, compared to $0.79 in last year’s third quarter. The increase in Adjusted EPS reflects fewer shares outstanding.

For the three months ended September 30, 2012, the Company reported Net Income attributable to Time Warner Inc. shareholders of $838 million, or $0.86 per diluted common share. This compares to Net Income attributable to Time Warner Inc. shareholders in 2011’s third quarter of $822 million, or $0.78 per diluted common share.

For the third quarter of 2012 and 2011, the Company reported Net Income of $838 million and $822 million, respectively.

USE OF NON-GAAP FINANCIAL MEASURES

The Company utilizes Adjusted Operating Income (Loss) and Adjusted Operating Income margin, among other measures, to evaluate the performance of its businesses. Adjusted Operating Income (Loss) is Operating Income (Loss) excluding the impact of noncash impairments of goodwill, intangible and fixed assets; gains and losses on operating assets; gains and losses recognized in connection with pension plan curtailments, settlements or termination benefits; external costs related to mergers, acquisitions or dispositions, as well as contingent consideration related to such transactions, to the extent such costs are expensed; and amounts related to securities litigation and government investigations. Adjusted Operating Income margin is defined as Adjusted Operating Income divided by Revenues. These measures are considered important indicators of the operational strength of the Company’s businesses.

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