Time Warner Inc. Reports Third Quarter 2006 Results

Business Wire, Nov 1, 2006

Time Warner Inc.'s financial results described in this release reflect, among other things, the discontinued operations treatment of certain cable systems transferred to Comcast Corporation in connection with the redemption of Comcast's interests in Time Warner Cable Inc. and Time Warner Entertainment Company, L.P. and the exchange of certain cable systems with Comcast. In addition, results for the three months ended September 30, 2006, include the impact of certain cable systems acquired from Adelphia Communications Corporation and Comcast Corporation since the closing of the transactions on July 31, 2006.

NEW YORK -- Time Warner Inc. (NYSE:TWX) today reported financial results for its third quarter ended September 30, 2006.

In making the announcement, Chairman and Chief Executive Officer Dick Parsons said: "Time Warner continues to build momentum and deliver value for our shareholders. This quarter's results position the Company to meet all of our full-year financial objectives. We're particularly encouraged by AOL's early progress in making the transition to an advertising-supported business. Just as importantly, Time Warner Cable is generating outstanding results, even while successfully integrating its newly acquired cable systems. In addition, our capital allocation efforts continue to drive incremental value - including our $20 billion share repurchase program as well as this year's more than $20 billion of acquisitions and almost $4 billion of announced or completed non-core asset divestitures."

Company Results

In the quarter, Revenues rose 7% over the same period in 2005 to $10.9 billion, led by growth at the Cable and Networks segments.

Adjusted Operating Income before Depreciation and Amortization climbed 16% to $2.9 billion, reflecting double-digit increases at the Cable and AOL segments as well as gains at the Networks and Publishing segments. This growth was offset partly by a decline at the Filmed Entertainment segment. Operating Income was up 1% to $1.7 billion.

For the first nine months, Cash Provided by Operations was $6.6 billion, and Free Cash Flow totaled $4.0 billion (reflecting a 50% conversion rate of Adjusted Operating Income before Depreciation and Amortization). As of September 30, 2006, Net Debt totaled $32.2 billion, up $16.1 billion from $16.1 billion at the end of 2005, reflecting, among other items, the closing of the Adelphia and Comcast transactions as well as the Company's share repurchase program.

Diluted Income per Common Share before Discontinued Operations and Cumulative Effect of Accounting Change was $0.33 for the three months ended September 30, 2006, compared to $0.18 in last year's third 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. After adjusting for such items, diluted common share results were $0.19, up 12% from $0.17 in the prior year period.

Stock Repurchase Program Update

From the inception of its stock repurchase program through October 31, 2006, the Company has repurchased approximately 770 million shares of common stock for approximately $13.4 billion.

At existing price levels, the Company expects that it will purchase at least $15 billion of its common stock by the end of 2006 and the remainder of its $20 billion program in 2007.

Performance of Segments

The schedules below reflect Time Warner's performance for the three and nine months ended September 30, by line of business (in millions):

[TABLE OMITTED]
(a) Adjusted Operating Income (Loss) before Depreciation and
    Amortization excluded 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 (Loss) included 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 on pages 13 and 14.
(b) For the nine months ended September 30, 2006, Adjusted Operating
    Income before Depreciation and Amortization excluded a $2 million
    gain from the resolution of a previously contingent gain related
    to the 2004 sale of Netscape Security Solutions. For the nine
    months ended September 30, 2005, Adjusted Operating Income before
    Depreciation and Amortization excluded a $24 million noncash
    goodwill impairment charge related to America Online Latin
    America, Inc., a $5 million gain related to the sale of a building
    and a $5 million gain from the resolution of a previously
    contingent gain related to the 2004 sale of Netscape Security
    Solutions. Operating Income included these amounts in their
    respective periods.
(c) For the three and nine months ended September 30, 2006, Adjusted
    Operating Income before Depreciation and Amortization and
    Operating Income included The WB Network shutdown costs of $38
    million and $119 million, respectively, at the Networks segment.
    Excluded from the $38 million and $119 million of shutdown costs
    is $18 million and $47 million, respectively, of intersegment
    eliminations related to terminating programming arrangements with
    other Time Warner divisions. Including intersegment eliminations,
    the net impact to the Company is $20 million and $72 million,
    respectively. For the three and nine months ended September 30,
    2006, Adjusted Operating Income before Depreciation and
    Amortization excluded a $200 million noncash goodwill impairment
    charge related to The WB Network. Operating Income included this
    amount in the same periods.
(d) For the nine months ended September 30, 2005, Adjusted Operating
    Income before Depreciation and Amortization excluded an $8 million
    gain related to the collection of a loan made in conjunction with
    the Company's 2003 sale of Time Life Inc., which was previously
    fully reserved due to concerns about recoverability. Operating
    Income included this amount in the same period.
(e) For the nine months ended September 30, 2006, Adjusted Operating
    Loss before Depreciation and Amortization excluded a $20 million
    gain on the sale of two aircraft. Operating Loss included this
    amount in the same period.
(f) For the three and nine months ended September 30, 2006, Adjusted
    Operating Loss before Depreciation and Amortization excluded $29
    million and $90 million, respectively, in net expenses related to
    the securities litigation and government investigations. For the
    nine months ended September 30, 2005, Adjusted Operating Loss
    before Depreciation and Amortization excluded $3 billion in legal
    reserves related to the securities litigation. Additionally, for
    the three and nine months ended September 30, 2005, Adjusted
    Operating Loss before Depreciation and Amortization excluded $16
    million and $25 million, respectively, in net expenses related to
    the securities litigation and government investigations.
(g) Represents amounts related to the securities litigation and
    government investigations. For segment reporting purposes in the
    Company's financial statements, amounts are reflected in the
    results of the Corporate segment. For the three and nine months
    ended September 30, 2006, $29 million and $90 million,
    respectively, in net expenses related to the securities litigation
    and government investigations were included. For the nine months
    ended September 30, 2005, $3 billion in legal reserves related to
    the securities litigation were included. Additionally, for the
    three and nine months ended September 30, 2005, $16 million and
    $25 million, respectively, in net expenses related to the
    securities litigation and government investigations were included.