Time Warner Inc. Reports Second-Quarter 2008 Results

Business Wire, August 6, 2008

NEW YORK -- Time Warner Inc. (NYSE:TWX) today reported financial results for its second quarter ended June 30, 2008.

Chief Executive Officer Jeff Bewkes said: "I'm pleased by the overall performance of our businesses so far this year, particularly in light of the challenging economic environment, and that we're on track to achieve our business outlook. This resilience reflects the strength of our brands, our expertise and our scale, which we think give us a sustained advantage in creating, packaging and distributing the industry's most compelling content - such as The Dark Knight, Sex and the City and The Closer."

Mr. Bewkes continued: "We've also made significant progress in our top structural initiatives. During the quarter, we agreed to the terms of our planned separation from Time Warner Cable. In addition, we've made the key decisions that will enable us to run AOL's access and audience businesses separately beginning in 2009. As we continue to reshape Time Warner, we'll increasingly focus on our goal to create and manage high-quality branded content, across multiple platforms around the world, at the highest returns possible for our stockholders."

Company Results

In the quarter, Revenues climbed 5% over the same period in 2007 to $11.6 billion, led by increases at the Filmed Entertainment, Cable and Networks segments.

Adjusted Operating Income before Depreciation and Amortization rose 4% to $3.2 billion. Growth at the Cable, Networks and Filmed Entertainment segments more than offset declines at the AOL and Publishing segments. Operating Income was up 1% to $1.9 billion.

For the first six months, Cash Provided by Operations was $4.9 billion, and Free Cash Flow totaled $2.9 billion (representing a 46% conversion rate of Adjusted Operating Income before Depreciation and Amortization). As of June 30, 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 $0.22 for the three months ended June 30, 2008, compared to $0.25 in last year's second 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 $0.02 per diluted common share and to increase the prior year quarter's results by $0.03 per diluted common share.

Segment Performances

Presentation of Financial Information

The schedule below reflects Time Warner's financial performance for the three and six months ended June 30, by line of business (millions).

In the presentation of financial information in this release, Adjusted Operating Income (Loss) 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.

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Presented below is a discussion of Time Warner's segments for the second quarter of 2008. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.

AOL

Revenues declined 16% ($196 million) to $1.1 billion, reflecting a 29% decrease ($200 million) in Subscription revenues, offset in part by a 2% increase ($8 million) in Advertising revenues. The decline in Subscription revenues was due primarily to a decrease in domestic AOL brand subscribers, resulting from AOL's strategy to offer its e-mail and other products free of charge to Internet consumers. Advertising revenues benefited from growth in sales of advertising on third-party Internet sites and paid-search advertising, offset partly by a decline in display advertising on AOL Network sites.

Adjusted Operating Income before Depreciation and Amortization decreased 28% ($135 million) to $350 million, as a result of lower Subscription revenues and higher traffic acquisition costs ($48 million), offset partially by reduced marketing, network and other expenses.

Operating Income declined 36% ($130 million) to $230 million, due largely to lower Adjusted Operating Income before Depreciation and Amortization.

Key Operating Metrics

During the quarter, AOL had 111 million average monthly domestic unique visitors and 56 billion domestic page views, according to comScore Media Metrix, which translates into 167 average monthly domestic page views per unique visitor.

As of June 30, 2008, the AOL service had 8.1 million U.S. access subscribers, a decline of 604,000 from the prior quarter and 2.8 million from the year-ago quarter, reflecting subscriber losses due in part to AOL's strategy to prioritize its advertising business.