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Time Warner Inc. Reports Third-Quarter 2012 Results

INFORMATION ON BUSINESS OUTLOOK RELEASE & CONFERENCE CALL

Time Warner Inc. issued a separate release today regarding its 2012 full-year business outlook.

The Company’s conference call can be heard live at 10:30 am ET on Wednesday, November 7, 2012. To listen to the call, visit www.timewarner.com/investors .

TIME WARNER INC.

CONSOLIDATED BALANCE SHEET

(Unaudited; millions, except share amounts)

   
September 30, December 31,
2012 2011
 
ASSETS
Current assets
Cash and equivalents $ 3,188 $ 3,476
Receivables, less allowances of $1,355 and $1,957 6,199 6,922
Inventories 2,091 1,890
Deferred income taxes 620 663
Prepaid expenses and other current assets   596     481  
Total current assets 12,694 13,432
 
Noncurrent inventories and theatrical film and television production costs 6,847 6,594

Investments, including available-for-sale securities

2,029 1,820
Property, plant and equipment, net 3,906 3,963
Intangible assets subject to amortization, net 2,012 2,232
Intangible assets not subject to amortization 7,805 7,805
Goodwill 30,190 30,029
Other assets   2,002     1,926  
Total assets $ 67,485   $ 67,801  
 
LIABILITIES AND EQUITY

Current liabilities

Accounts payable and accrued liabilities $ 7,075 $ 7,815
Deferred revenue 1,050 1,084
Debt due within one year   754     23  
Total current liabilities 8,879 8,922
 
Long-term debt 19,122 19,501
Deferred income taxes 2,553 2,541
Deferred revenue 521 549
Other noncurrent liabilities 6,391 6,334
 
Equity
Common stock, $0.01 par value, 1.652 billion and 1.652 billion shares
issued and 950 million and 974 million shares outstanding 17 17
Paid-in-capital 154,918 156,114
Treasury stock, at cost (702 million and 678 million shares) (34,276 ) (33,651 )
Accumulated other comprehensive loss, net (820 ) (852 )
Accumulated deficit   (89,820 )   (91,671 )
Total Time Warner Inc. shareholders’ equity 30,019 29,957
Noncontrolling interests   -     (3 )
Total equity   30,019     29,954  
Total liabilities and equity $ 67,485   $ 67,801  
 

TIME WARNER INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(Unaudited; millions, except per share amounts)

   
Three Months Ended Nine Months Ended
9/30/12   9/30/11 9/30/12   9/30/11
 
Revenues $ 6,842 $ 7,068 $ 20,565 $ 20,781
Costs of revenues (3,657 ) (3,808 ) (11,498 ) (11,579 )
Selling, general and administrative (1,511 ) (1,563 ) (4,692 ) (4,775 )
Amortization of intangible assets (57 ) (68 ) (178 ) (202 )
Restructuring and severance costs (35 ) (30 ) (84 ) (84 )
Asset impairments (3 ) (4 ) (182 ) (15 )
Gain (loss) on operating assets   2     1     (40 )   6  
Operating income 1,581 1,596 3,891 4,132
Interest expense, net (318 ) (310 ) (946 ) (898 )
Other loss, net   (7 )   (33 )   (54 )   (49 )
 
Income before income taxes 1,256 1,253 2,891 3,185
Income tax provision   (418 )   (431 )   (1,043 )   (1,075 )
Net income 838 822 1,848 2,110
Less Net loss attributable to
noncontrolling interests   -     -     3     3  
Net income attributable to Time Warner Inc.
shareholders $ 838   $ 822   $ 1,851   $ 2,113  
 
Per share information attributable to
Time Warner Inc. common shareholders:
Basic net income per common share $ 0.88   $ 0.79   $ 1.92   $ 1.97  
Average basic common shares outstanding   950.4     1,036.4     958.5     1,064.2  
 
Diluted net income per common share $ 0.86   $ 0.78   $ 1.89   $ 1.95  
Average diluted common shares outstanding   973.9     1,053.3     979.4     1,082.4  
 
Cash dividends declared per share of common
stock $ 0.2600   $ 0.2350   $ 0.7800   $ 0.7050  
 

TIME WARNER INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

Nine Months Ended September 30,

(Unaudited; millions)

   
2012 2011
 
OPERATIONS
Net income $ 1,848 $ 2,110
Adjustments for noncash and nonoperating items:
Depreciation and amortization 658 689
Amortization of film and television costs 5,375 5,120
Asset impairments 182 15
Loss on investments and other assets, net 71 4
Equity in losses of investee companies, net of cash distributions 54 76
Equity-based compensation 187 185
Deferred income taxes 40 106
Changes in operating assets and liabilities, net of acquisitions   (6,118)   (6,159)
Cash provided by operations from continuing operations 2,297 2,146
Cash used by operations from discontinued operations   (8)   (1)
Cash provided by operations   2,289   2,145
 
INVESTING ACTIVITIES
Investments in available-for-sale securities (29) (3)
Investments and acquisitions, net of cash acquired (572) (326)
Capital expenditures (426) (511)
Investment proceeds from available-for-sale securities 1 8
Other investment proceeds   80   48
Cash used by investing activities   (946)   (784)
 
FINANCING ACTIVITIES
Borrowings 1,032 2,029
Debt repayments (678) (60)
Proceeds from exercise of stock options 801 174
Excess tax benefit on stock options 58 19
Principal payments on capital leases (9) (9)
Repurchases of common stock (1,996) (3,083)
Dividends paid (762) (761)
Other financing activities   (77)   (88)
Cash used by financing activities   (1,631)   (1,779)
 
DECREASE IN CASH AND EQUIVALENTS (288) (418)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD   3,476   3,663
CASH AND EQUIVALENTS AT END OF PERIOD $ 3,188 $ 3,245
 

TIME WARNER INC. RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES (Unaudited; dollars in millions)

 

Reconciliations of Adjusted Operating Income (Loss) to Operating Income (Loss) and Adjusted Operating Income Margin to Operating Income Margin

       
Three Months Ended September 30, 2012
   

Adjusted Operating Income (Loss)

Asset Impairments

Gain (Loss) on Operating Assets

Other

Operating Income (Loss)

Networks $ 1,223 $ (1) $ - $ 2 $ 1,224
Film and TV Entertainment 330 (2) 1 (1) 328
Publishing 126 - 1 - 127
Corporate (85) - - (1) (86)
Intersegment eliminations   (12)   -   -   -   (12)
Total $ 1,582 $ (3) $ 2 $ - $ 1,581
 
Margin (a) 23.1% - - - 23.1%
 
Three Months Ended September 30, 2011
 

Adjusted Operating Income (Loss)

Asset Impairments

Gain (Loss) on Operating Assets

Other

Operating Income (Loss)

Networks $ 1,093 $ - $ - $ (1) $ 1,092
Film and TV Entertainment 528 (4) 1 (1) 524
Publishing 124 - - - 124
Corporate (78) - - (4) (82)
Intersegment eliminations   (62)   -   -   -   (62)
Total $ 1,605 $ (4) $ 1 $ (6) $ 1,596
 
Margin (a) 22.7% - - (0.1%) 22.6%
 

Please see below for additional information on items affecting comparability.

 
   
Nine Months Ended September 30, 2012
     

Adjusted Operating Income (Loss)

Asset Impairments

Gain (Loss) on Operating Assets

Other

Operating Income (Loss)

Networks $ 3,545 $ (180 ) $ - $ (24 ) $ 3,341
Film and TV Entertainment 682 (2 ) 1 (5 ) 676
Publishing 262 - (41 ) (1 ) 220
Corporate (263 ) - - (3 ) (266 )
Intersegment eliminations   (80 )   -     -     -     (80 )
Total $ 4,146   $ (182 ) $ (40 ) $ (33 ) $ 3,891  
 
Margin (a) 20.2 % (0.9 %) (0.2 %) (0.2 %) 18.9 %
 
Nine Months Ended September 30, 2011
 

Adjusted Operating Income (Loss)

Asset Impairments

Gain (Loss) on Operating Assets

Other

Operating Income (Loss)

Networks $ 3,287 $ - $ (2 ) $ (7 ) $ 3,278
Film and TV Entertainment 846 (15 ) 8 (3 ) 836
Publishing 356 - - - 356
Corporate (253 ) - - (8 ) (261 )
Intersegment eliminations   (77 )   -     -     -     (77 )
Total $ 4,159   $ (15 ) $ 6   $ (18 ) $ 4,132  
 
Margin (a) 20.0 % (0.1 %) 0.1 % (0.1 %) 19.9 %
 

Please see below for additional information on items affecting comparability.

 
 
(a) Adjusted Operating Income Margin is defined as Adjusted Operating Income divided by Revenues. Operating Income Margin is defined as Operating Income divided by Revenues.
 
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)
 
Reconciliations of
Adjusted Net Income attributable to Time Warner Inc. common shareholders to
Net Income attributable to Time Warner Inc. common shareholders and
Adjusted EPS to Diluted Net Income per Common Share
   
Three Months Ended Nine Months Ended
9/30/12   9/30/11 9/30/12   9/30/11
 
Asset impairments $ (3) $ (4) $ (182) $ (15)
Gain (loss) on operating assets 2 1 (40) 6
Other   -   (6)   (33)   (18)
Impact on Operating Income (1) (9) (255) (27)
 
Investment gains (losses), net (5) 2 (29) (1)
Amounts related to the separation of Time
Warner Cable Inc. 6 (15) 6 (10)
Amounts related to the disposition of the
Warner Music Group   1   -   (5)   -
Pretax impact 1 (22) (283) (38)
Income tax impact of above items   (1)   8   59   22
Impact of items affecting comparability on net
income attributable to Time Warner Inc.
shareholders $ - $ (14) $ (224) $ (16)
 
Amounts attributable to Time Warner Inc.
shareholders:
Net income $ 838 $ 822 $ 1,851 $ 2,113
Less Impact of items affecting comparability
on net income   -   (14)   (224)   (16)
Adjusted net income $ 838 $ 836 $ 2,075 $ 2,129
 
Per share information attributable to Time
Warner Inc. common shareholders:
Diluted net income per common share $ 0.86 $ 0.78 $ 1.89 $ 1.95
Less Impact of items affecting comparability on
diluted net income per common share   -   (0.01)   (0.23)   (0.02)
Adjusted EPS $ 0.86 $ 0.79 $ 2.12 $ 1.97
Average diluted common shares outstanding   973.9   1,053.3   979.4   1,082.4
 

Asset Impairments

During the three and nine months ended September 30, 2012, the Company recognized a $1 million reversal and $178 million of charges, respectively, at the Networks segment in connection with the shutdown of Turner’s general entertainment network, Imagine, in India and TNT television operations in Turkey (the “Imagine and TNT Turkey Shutdowns”) primarily related to certain receivables, including value added tax receivables, inventories and long-lived assets, including Goodwill. For both the three and nine months ended September 30, 2012, the Company also recognized $4 million of other miscellaneous noncash asset impairments consisting of $2 million at the Networks segment and $2 million at the Film and TV Entertainment segment.

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