Exhibit 99.1
TIME WARNER INC. REPORTS THIRD-QUARTER 2015 RESULTS
Third-Quarter Highlights
| • | Revenues increased 5% to $6.6 billion |
| • | Company posted Adjusted Operating Income of $1.8 billion and Adjusted EPS of $1.25 |
| • | Free Cash Flow totaled $2.9 billion in the first nine months of 2015 |
| • | Company repurchased 41 million shares for $3.3 billion year-to-date through October 30, 2015 |
NEW YORK, November 4, 2015 – Time Warner Inc. (NYSE:TWX) today reported financial results for its third quarter ended September 30, 2015.
Chairman and Chief Executive Officer Jeff Bewkes said: “We had another very good quarter, with Revenues up 5% and strong growth in Adjusted Operating Income, which totaled $1.8 billion. Our revenue growth was led by Warner Bros. and Home Box Office, and illustrated how our investments in great content have been paying off in our traditional television businesses, as well as in newer areas such as videogames. In September, HBO received a record 43 Primetime Emmy Awards, the most of any network for the 14th consecutive year. That included 12 awards forGame of Thrones,setting a record for a series in a single year.”
Mr. Bewkes continued: “Warner Bros. solidified its position as the leading producer of broadcast series on television with the debuts ofBlindspot andSupergirl - the two most-watched new shows among adults 18-49 this broadcast season.Supergirl represents one of the eight shows on television this season based on IP from DC Entertainment, which is also a driver behind the record year Warner Bros. is having in videogames. Through the first three quarters of 2015, Warner Bros. was the top videogames publisher in the U.S. At Turner, buoyed by our coverage of the Major League Baseball playoffs, TBS is the #1 ad-supported cable network in primetime among adults 18-49 year-to-date. Cartoon Network continued to gain share, ending the third quarter as the #1 ad-supported cable network in total day among kids 6-11. Adult Swim also stood out as ad-supported cable’s #1 total day network among adults 18-34 for the 30th consecutive quarter. And CNN continued to grow its primetime ratings across all key demographics in the quarter. Further demonstrating our continuing commitment to shareholder returns, so far this year we’ve returned $4.2 billion to our shareholders through share repurchases and dividends.”
Company Results
Revenues increased 5% to $6.6 billion due to growth at Warner Bros. and Home Box Office, partially offset by higher intercompany eliminations and a decline at Turner. Adjusted Operating Income grew 85% to $1.8 billion due to growth across all operating divisions, reflecting the absence of programming charges incurred in 2014 at Turner and lower restructuring and severance charges across all segments, partially offset by higher intercompany eliminations.Revenues and Adjusted Operating Income included the unfavorable impact of foreign exchange rates of $290 million and $160 million, respectively, in the quarter. Operating Income increased 89% to $1.8 billion.
The Company posted Adjusted Diluted Income per Common Share from Continuing Operations (“Adjusted EPS”) of $1.25 versus $1.22 for the prior year quarter. Excluding a net tax benefit of $639 million,
programming charges at Turner and restructuring and severance charges in the prior year quarter, Adjusted EPS would have been $0.97 in the prior year quarter. Diluted Income per Common Share from Continuing Operations was $1.26 compared to $1.11 in the prior year quarter.
For the first nine months of 2015, Cash Provided by Operations from Continuing Operations reached $3.0 billion and Free Cash Flow totaled $2.9 billion. As of September 30, 2015, Net Debt was $21.2 billion, up from $19.8 billion at the end of 2014, due to share repurchases, dividends and investments and acquisitions, partially offset by the generation of Free Cash Flow.
Refer to “Use of Non-GAAP Financial Measures” in this release for a discussion of the non-GAAP financial measures used in this release and the reconciliations of the non-GAAP financial measures to the most directly comparable GAAP financial measures.
Stock Repurchase Program Update
From January 1, 2015 through October 30, 2015, the Company repurchased approximately 41 million shares of common stock for approximately $3.3 billion. These amounts reflect the purchase of approximately 16 million shares of common stock for approximately $1.2 billion since the amounts reported in the Company’s second quarter earnings release on August 5, 2015. At October 30, 2015, approximately $1.2 billion remained available for repurchases under the Company’s stock repurchase program.
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Segment Performance
The schedule below reflects Time Warner’s financial performance for the three and nine months ended September 30, by line of business (millions).
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| Three Months Ended September 30, |
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| Nine Months Ended September 30, | ||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Revenues: | ||||||||||||||
Turner | $ | 2,398 | $ | 2,446 | $ | 7,935 | $ 7,789 | |||||||
Home Box Office | 1,367 | 1,304 | 4,203 | 4,060 | ||||||||||
Warner Bros. | 3,190 | 2,775 | 9,687 | 8,711 | ||||||||||
Intersegment eliminations | (391) | (282) | (786) | (726) | ||||||||||
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Total Revenues | $ | 6,564 | $ | 6,243 | $ | 21,039 | $ 19,834 | |||||||
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Adjusted Operating Income (Loss)(a): | ||||||||||||||
Turner(b) | $ | 1,071 | $ | 350 | $ | 3,329 | $ 2,185 | |||||||
Home Box Office | 519 | 380 | 1,485 | 1,396 | ||||||||||
Warner Bros. | 388 | 241 | 1,062 | 857 | ||||||||||
Corporate | (58) | (114) | (249) | (336) | ||||||||||
Intersegment eliminations(b) | (78) | 136 | (109) | 135 | ||||||||||
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Total Adjusted Operating Income | $ | 1,842 | $ | 993 | $ | 5,518 | $ 4,237 | |||||||
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Operating Income (Loss)(a): | ||||||||||||||
Turner(b) | $ | 1,072 | $ | 337 | $ | 3,310 | $ 2,166 | |||||||
Home Box Office | 519 | 380 | 1,485 | 1,392 | ||||||||||
Warner Bros. | 385 | 237 | 1,050 | 840 | ||||||||||
Corporate(c) | (64) | (119) | (257) | 53 | ||||||||||
Intersegment eliminations(b) | (78) | 136 | (109) | 135 | ||||||||||
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Total Operating Income | $ | 1,834 | $ | 971 | $ | 5,479 | $ 4,586 | |||||||
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Depreciation and Amortization: | ||||||||||||||
Turner | $ | 51 | $ | 55 | $ | 155 | $ 169 | |||||||
Home Box Office | 22 | 22 | 68 | 69 | ||||||||||
Warner Bros. | 88 | 100 | 262 | 293 | ||||||||||
Corporate | 6 | 6 | 16 | 20 | ||||||||||
Intersegment eliminations | — | — | — | — | ||||||||||
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Total Depreciation and Amortization | $ | 167 | $ | 183 | $ | 501 | $ 551 | |||||||
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(a) Adjusted Operating Income (Loss) and Operating Income (Loss) for the three and nine months ended September 30, 2015 and 2014 included restructuring and severance costs of (millions): | ||||||||||||||
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Turner | $ | (5) | $ | (199) | $ | (23) | $ (223) | |||||||
Home Box Office | — | (48) | (5) | (57) | ||||||||||
Warner Bros. | (1) | (45) | (3) | (50) | ||||||||||
Corporate | (3) | (11) | — | (16) | ||||||||||
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Total Restructuring and Severance Costs | $ | (9) | $ | (303) | $ | (31) | $ (346) | |||||||
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(b) Adjusted Operating Income (Loss) and Operating Income (Loss) for the three and nine months ended September 30, 2014 included $482 million of programming charges at Turner. These charges were partially offset by $139 million of intercompany eliminations primarily related to intercompany profits on programming Turner licensed from Warner Bros. The result was a net charge to Time Warner of $343 million. (c) Operating Income (Loss) for the nine months ended September 30, 2014 included a $441 million gain in connection with the sale and leaseback of the Company’s space in Time Warner Center. | ||||||||||||||
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Presented below is a discussion of the performance of Time Warner’s segments for the third quarter of 2015. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.
TURNER
Revenues decreased 2% ($48 million) to $2.4 billion, due to declines of 15% ($18 million) in Content and other revenues, 1% ($17 million) in Subscription revenues and 1% ($13 million) in Advertising revenues. Content and other revenues decreased due to lower subscription video-on-demand revenues. The decline in Subscription revenues was due to the impact of foreign exchange rates and a decline in domestic subscribers, partially offset by higher domestic rates and local currency growth at Turner’s international networks. Advertising revenues decreased due to the impact of foreign exchange rates and the absence of NASCAR programming, partially offset by local currency growth at Turner’s international networks. Domestic advertising was flat in the quarter.
Adjusted Operating Income increased 206% ($721 million) to $1.1 billion, as the decline in revenues was more than offset by lower expenses, including decreased programming costs and lower restructuring and severance costs. Programming costs decreased 45% primarily due to the absence of the prior year quarter’s $482 million of charges related to Turner’s decision to no longer air certain programming. Excluding these charges in the prior year, programming costs decreased in the high-single digits mainly due to the absence of NASCAR programming.
Operating Income increased 218% ($735 million) to $1.1 billion.
TNT’s NBA Opening Night doubleheader averaged 2.9 million total viewers, up 24% over last year, and generated double-digit growth across all key demographics. TBS’ Major League Baseball postseason coverage averaged 6.3 million total viewers, up close to 50% compared to last year, and was the network’s most watched postseason ever. For the 30th consecutive quarter, Adult Swim was ad-supported cable’s #1 total day network among adults 18-34, and it was #1 among adults 18-49 in the third quarter. CNN’s recent coverage of the Republican presidential debate garnered over 23 million average viewers - making it CNN’s most watched program ever - and the Democratic presidential debate reached over 15 million average viewers - making it the most watched Democratic debate ever on cable. CNN continued to grow primetime ratings across all key demographics, up 39% and 35% for adults 18-49 and 25-54, respectively, in the third quarter. Cartoon Network was once again the only top 3 kids network to grow ratings in the quarter, and ranked as the #1 ad-supported cable network in total day ratings among kids 6-11.
HOME BOX OFFICE
Revenues increased 5% ($63 million) to $1.4 billion, due to increases of 4% ($44 million) in Subscription revenues and 13% ($19 million) in Content and other revenues. Subscription revenues grew primarily due to higher domestic rates, partially offset by lower international revenues, which included the impact of the transfer to Turner of the operation of HBO’s basic cable network in India. The increase in Content and other revenues primarily reflected higher domestic licensing revenues.
Adjusted Operating Income increased 37% ($139 million) to $519 million, reflecting higher revenues and lower expenses. The decrease in expenses was mainly due to lower restructuring and severance costs as well as decreased distribution and programming costs, partially offset by higher marketing and technology costs. Programming costs decreased 6% primarily reflecting lower acquired theatrical programming costs. The higher marketing and technology costs related to HBO NOW, HBO’s stand-alone streaming service.
Operating Income increased 37% ($139 million) to $519 million.
In September, HBO received a record 43 Primetime Emmy Awards, the most of any network for the 14th consecutive year, withGame of Thrones receiving 12 awards, a record for a series in one year, andOlive
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Kitteridge receiving eight awards, the second-most of any program. HBO recently added Roku as a distributor for HBO NOW and added support for streaming HBO NOW to Google’s Chromecast and Amazon’s FireTV. In October, HBO Latin America Group announced plans to launch a new streaming version of HBO GO for broadband-only subscribers in Latin America and the Caribbean.
WARNER BROS.
Revenues increased 15% ($415 million) to $3.2 billion, reflecting higher videogames and television licensing revenues, partially offset by the impact of foreign exchange rates, the absence of revenues from a patent license and settlement agreement in the prior year quarter and lower theatrical revenues. The increase in videogames revenues was primarily due to the releases ofLEGO DimensionsandMad Max, as well as carryover revenues from several titles, includingMortal Kombat XandBatman: Arkham Knight. Television licensing revenues benefited from the initial cable and off-network availability of2 Broke Girlsand the initial cable availability and subscription video-on-demand licensing ofPerson of Interest.
Adjusted Operating Income increased 61% ($147 million) to $388 million, due to the increase in revenues, lower theatrical and videogames valuation adjustments and decreased restructuring and severance costs, partially offset by higher print and advertising costs.
Operating Income increased 62% ($148 million) to $385 million.
Season-to-date among adults 18-49:Blindspotand Supergirl ranked as the top two new series,The Voice ranked as the #1 non-scripted series andThe Big Bang Theory ranked as the #1 comedy and #2 series overall in primetime on broadcast television. For the first nine months of the year, Warner Bros. ranked as the top U.S. videogame publisher, andMortal Kombat Xwas the #1 videogame.
CONSOLIDATED NET INCOME AND PER SHARE RESULTS
Third-Quarter Results
Adjusted EPS was $1.25 for the three months ended September 30, 2015, compared to $1.22 in last year’s third quarter. The increase in Adjusted EPS primarily reflects higher Adjusted Operating Income and fewer shares outstanding, offset in part by higher taxes as a result of the $639 million net tax benefit in the third quarter of 2014 mainly related to the reversal of certain tax reserves in connection with an audit settlement.
For the three months ended September 30, 2015, the Company had Income from Continuing Operations of $1.0 billion, or $1.26 per diluted common share. This compares to Income from Continuing Operations attributable to Time Warner common shareholders in the third quarter of 2014 of $966 million, or $1.11 per diluted common share.
For the third quarters of 2015 and 2014, the Company had Net Income of $1.0 billion and $967 million, respectively.
USE OF NON-GAAP FINANCIAL MEASURES
The Company utilizes Adjusted Operating Income (Loss), Adjusted Operating Income margin and Adjusted EPS, among other measures, to evaluate the performance of its businesses. These measures are considered important indicators of the operational strength of the Company’s businesses. Some limitations of Adjusted Operating Income (Loss), Adjusted Operating Income margin and Adjusted EPS are that they do not reflect certain charges that affect the operating results of the Company’s businesses and they involve judgment as to whether items affect fundamental operating performance.
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 (other than
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deferred gains on sale-leasebacks); gains and losses recognized in connection with pension and other postretirement benefit plan curtailments or settlements; external costs related to mergers, acquisitions or dispositions, as well as contingent consideration related to such transactions, to the extent such costs are expensed; amounts related to securities litigation and government investigations; and the foreign currency losses during the three months ended December 31, 2014 and March 31, 2015, related to the translation of net monetary assets denominated in Venezuelan currency resulting from the Company’s change to the SICAD 2 exchange rate beginning December 31, 2014 and the Simadi exchange rate during the quarter ended March 31, 2015, respectively. Adjusted Operating Income margin is defined as Adjusted Operating Income divided by Revenues.
Adjusted EPS is Diluted Income per Common Share from Continuing Operations attributable to Time Warner Inc. common shareholders with the following items excluded from Income from Continuing Operations attributable to Time Warner Inc. common shareholders: noncash impairments of goodwill, intangible and fixed assets and investments; gains and losses on operating assets (other than deferred gains on sale-leasebacks), liabilities and investments; gains and losses recognized in connection with pension and other postretirement benefit plan curtailments or settlements; external costs related to mergers, acquisitions, investments or dispositions, as well as contingent consideration related to such transactions, to the extent such costs are expensed; amounts related to securities litigation and government investigations; the foreign currency losses during the three months ended December 31, 2014 and March 31, 2015 related to the translation of net monetary assets denominated in Venezuelan currency resulting from the Company’s change to the SICAD 2 exchange rate beginning December 31, 2014 and the Simadi exchange rate during the quarter ended March 31, 2015, respectively; and amounts attributable to businesses classified as discontinued operations; as well as the impact of taxes and noncontrolling interests on the above items and the Company’s share of the above items with respect to equity method investments. Adjusted EPS is considered an important indicator of the operational strength of the Company’s businesses as this measure eliminates amounts that do not reflect the fundamental performance of the Company’s businesses. The Company utilizes Adjusted EPS, among other measures, to evaluate the performance of its businesses both on an absolute basis and relative to its peers and the broader market. Many investors also use an adjusted EPS measure as a common basis for comparing the performance of different companies.
Free Cash Flow is defined as Cash Provided by Operations from Continuing Operations plus payments related to securities litigation and government investigations (net of any insurance recoveries), external costs related to mergers, acquisitions, investments or dispositions, to the extent such costs are expensed, contingent consideration payments made in connection with acquisitions, and excess tax benefits from equity instruments, less capital expenditures, 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 general limitation of these measures is that they are not prepared in accordance with U.S. generally accepted accounting principles and may not be comparable to similarly titled measures of other companies due to differences in methods of calculation and excluded items. Adjusted Operating Income (Loss), Adjusted EPS and Free Cash Flow should be considered in addition to, not as a substitute for, the Company’s Operating Income (Loss), Diluted Income per Common Share from Continuing Operations and various cash flow measures (e.g., Cash Provided by Operations from Continuing Operations), as well as other measures of financial performance and liquidity reported in accordance with U.S. generally accepted accounting principles.
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ABOUT TIME WARNER INC.
Time Warner Inc., a global leader in media and entertainment with businesses in television networks and film and TV entertainment, uses its industry-leading operating scale and brands to create, package and deliver high-quality content worldwide on a multi-platform basis.
CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This document contains 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 Time Warner’s businesses. 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 subsequent Quarterly Reports 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.
INFORMATION ON BUSINESS OUTLOOK RELEASE & CONFERENCE CALL
Time Warner Inc. issued a separate release today regarding its 2015 full-year business outlook.
The Company’s conference call can be heard live at 10:30 am ET on Wednesday, November 4, 2015. To listen to the call, visit www.timewarner.com/investors.
| CONTACTS: | ||
| Corporate Communications | Investor Relations | |
| Keith Cocozza (212) 484-7482 | Michael Kopelman (212) 484-8920 | |
Michael Senno (212) 484-8950 |
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TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; millions, except share amounts)
| September 30, 2015 | December 31, 2014 | |||||
ASSETS | ||||||
Current assets | ||||||
Cash and equivalents | $ | 1,774 | $ 2,618 | |||
Receivables, less allowances of $854 and $1,152 | 7,322 | 7,720 | ||||
Inventories | 1,973 | 1,700 | ||||
Deferred income taxes | 184 | 184 | ||||
Prepaid expenses and other current assets | 886 | 958 | ||||
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Total current assets | 12,139 | 13,180 | ||||
Noncurrent inventories and theatrical film and television production costs | 7,294 | 6,841 | ||||
Investments, including available-for-sale securities | 2,154 | 2,326 | ||||
Property, plant and equipment, net | 2,569 | 2,655 | ||||
Intangible assets subject to amortization, net | 1,001 | 1,141 | ||||
Intangible assets not subject to amortization | 7,027 | 7,032 | ||||
Goodwill | 27,702 | 27,565 | ||||
Other assets | 2,788 | 2,406 | ||||
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Total assets | $ | 62,674 | $ 63,146 | |||
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LIABILITIES AND EQUITY | ||||||
Current liabilities | ||||||
Accounts payable and accrued liabilities | $ | 7,597 | $ 7,507 | |||
Deferred revenue | 607 | 579 | ||||
Debt due within one year | 199 | 1,118 | ||||
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Total current liabilities | 8,403 | 9,204 | ||||
Long-term debt | 22,728 | 21,263 | ||||
Deferred income taxes | 2,006 | 2,204 | ||||
Deferred revenue | 293 | 315 | ||||
Other noncurrent liabilities | 5,567 | 5,684 | ||||
Redeemable noncontrolling interest | 29 | — | ||||
Equity | ||||||
Common stock, $0.01 par value, 1.652 billion and 1.652 billion shares issued and 803 million and 832 million shares outstanding | 17 | 17 | ||||
Additional paid-in capital | 148,309 | 149,282 | ||||
Treasury stock, at cost (849 million and 820 million shares) | (45,048) | (42,445) | ||||
Accumulated other comprehensive loss, net | (1,392) | (1,164) | ||||
Accumulated deficit | (78,238) | (81,214) | ||||
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Total equity | 23,648 | 24,476 | ||||
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Total liabilities and equity | $ | 62,674 | $ 63,146 | |||
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TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; millions, except per share amounts)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Revenues | $ | 6,564 | $ | 6,243 | $ | 21,039 | $ 19,834 | |||||||
Costs of revenues | (3,526) | (3,681) | (11,802) | (11,457) | ||||||||||
Selling, general and administrative | (1,143) | (1,226) | (3,580) | (3,713) | ||||||||||
Amortization of intangible assets | (47) | (52) | (138) | (152) | ||||||||||
Restructuring and severance costs | (9) | (303) | (31) | (346) | ||||||||||
Asset impairments | (7) | (5) | (8) | (31) | ||||||||||
Gain (loss) on operating assets, net | 2 | (5) | (1) | 451 | ||||||||||
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Operating income | 1,834 | 971 | 5,479 | 4,586 | ||||||||||
Interest expense, net | (294) | (307) | (874) | (868) | ||||||||||
Other loss, net | (54) | (135) | (296) | (140) | ||||||||||
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Income from continuing operations before income taxes | 1,486 | 529 | 4,309 | 3,578 | ||||||||||
Income tax benefit (provision) | (452) | 437 | (1,371) | (404) | ||||||||||
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Income from continuing operations | 1,034 | 966 | 2,938 | 3,174 | ||||||||||
Discontinued operations, net of tax | — | 1 | 37 | (65) | ||||||||||
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Net income | 1,034 | 967 | 2,975 | 3,109 | ||||||||||
Less Net loss attributable to noncontrolling interests | 1 | — | 1 | — | ||||||||||
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Net income attributable to Time Warner Inc. shareholders | $ | 1,035 | $ | 967 | $ | 2,976 | $ 3,109 | |||||||
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Amounts attributable to Time Warner Inc. shareholders: | ||||||||||||||
Income from continuing operations | $ | 1,035 | $ | 966 | $ | 2,939 | $ 3,174 | |||||||
Discontinued operations, net of tax | — | 1 | 37 | (65) | ||||||||||
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Net income | $ | 1,035 | $ | 967 | $ | 2,976 | $ 3,109 | |||||||
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Per share information attributable to Time Warner Inc. common shareholders: | ||||||||||||||
Basic income per common share from continuing operations | $ | 1.27 | $ | 1.13 | $ | 3.57 | $ 3.63 | |||||||
Discontinued operations | — | — | 0.05 | (0.08) | ||||||||||
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Basic net income per common share | $ | 1.27 | $ | 1.13 | $ | 3.62 | $ 3.55 | |||||||
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Average basic common shares outstanding | 810.2 | 850.9 | 820.4 | 872.2 | ||||||||||
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Diluted income per common share from continuing operations | $ | 1.26 | $ | 1.11 | $ | 3.52 | $ 3.56 | |||||||
Discontinued operations | — | — | 0.04 | (0.07) | ||||||||||
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Diluted net income per common share | $ | 1.26 | $ | 1.11 | $ | 3.56 | $ 3.49 | |||||||
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Average diluted common shares outstanding | 824.1 | 870.2 | 835.5 | 891.6 | ||||||||||
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Cash dividends declared per share of common stock | $ | 0.3500 | $ | 0.3175 | $ | 1.0500 | $ 0.9525 | |||||||
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TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Nine Months Ended September 30,
(Unaudited; millions)
| 2015 | 2014 | |||||
OPERATIONS | ||||||
Net income | $ | 2,975 | $ 3,109 | |||
Less Discontinued operations, net of tax | (37) | 65 | ||||
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Net income from continuing operations | 2,938 | 3,174 | ||||
Adjustments for noncash and nonoperating items: | ||||||
Depreciation and amortization | 501 | 551 | ||||
Amortization of film and television costs | 5,739 | 5,933 | ||||
Asset impairments | 8 | 31 | ||||
Gain on investments and other assets, net | (39) | (453) | ||||
Equity in losses of investee companies, net of cash distributions | 160 | 136 | ||||
Equity-based compensation | 154 | 174 | ||||
Deferred income taxes | (176) | (315) | ||||
Changes in operating assets and liabilities, net of acquisitions | (6,284) | (6,557) | ||||
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Cash provided by operations from continuing operations | 3,001 | 2,674 | ||||
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INVESTING ACTIVITIES | ||||||
Investments in available-for-sale securities | (41) | (30) | ||||
Investments and acquisitions, net of cash acquired | (344) | (878) | ||||
Capital expenditures | (250) | (316) | ||||
Investment proceeds from available-for-sale securities | 1 | 17 | ||||
Proceeds from Time Inc. in the Time Separation | — | 1,400 | ||||
Proceeds from the sale of Time Warner Center | — | 1,264 | ||||
Other investment proceeds | 133 | 125 | ||||
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Cash provided (used) by investing activities from continuing operations | (501) | 1,582 | ||||
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FINANCING ACTIVITIES | ||||||
Borrowings | 2,877 | 2,406 | ||||
Debt repayments | (2,341) | (21) | ||||
Proceeds from exercise of stock options | 148 | 276 | ||||
Excess tax benefit from equity instruments | 141 | 138 | ||||
Principal payments on capital leases | (8) | (8) | ||||
Repurchases of common stock | (3,030) | (4,481) | ||||
Dividends paid | (869) | (841) | ||||
Other financing activities | (258) | (147) | ||||
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Cash used by financing activities from continuing operations | (3,340) | (2,678) | ||||
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Cash provided (used) by continuing operations | (840) | 1,578 | ||||
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Cash used by operations from discontinued operations | (4) | (10) | ||||
Cash used by investing activities from discontinued operations | — | (51) | ||||
Cash used by financing activities from discontinued operations | — | (36) | ||||
Effect of change in cash and equivalents of discontinued operations | — | (87) | ||||
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Cash used by discontinued operations | (4) | (184) | ||||
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INCREASE (DECREASE) IN CASH AND EQUIVALENTS | (844) | 1,394 | ||||
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD | 2,618 | 1,816 | ||||
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CASH AND EQUIVALENTS AT END OF PERIOD | $ | 1,774 | $ 3,210 | |||
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10
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, 2015
| Adjusted Operating Income (Loss) | Asset Impairments | Gain (Loss) on Operating Assets, Net | Venezuelan Foreign Currency Loss | Other | Operating | |||||||||||||||||
Turner | $ | 1,071 | $ | (1) | $ | 2 | $ | — | $ | — | $ 1,072 | |||||||||||
Home Box Office | 519 | — | — | — | — | 519 | ||||||||||||||||
Warner Bros. | 388 | (1) | — | — | (2) | 385 | ||||||||||||||||
Corporate | (58) | (5) | — | — | (1) | (64) | ||||||||||||||||
Intersegment eliminations | (78) | — | — | — | — | (78) | ||||||||||||||||
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Time Warner | $ | 1,842 | $ | (7) | $ | 2 | $ | — | $ | (3) | $ 1,834 | |||||||||||
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Margin(a) | 28.1% | (0.1)% | —% | —% | (0.1)% | 27.9% | ||||||||||||||||
Three Months Ended September 30, 2014 | ||||||||||||||||||||||
| Adjusted Operating Income (Loss) | Asset Impairments | Gain (Loss) on Operating Assets, Net | Venezuelan Foreign Currency Loss | Other | Operating | |||||||||||||||||
Turner | $ | 350 | $ | (4) | $ | (5) | $ | — | $ | (4) | $ 337 | |||||||||||
Home Box Office | 380 | — | — | — | — | 380 | ||||||||||||||||
Warner Bros. | 241 | — | — | — | (4) | 237 | ||||||||||||||||
Corporate | (114) | (1) | — | — | (4) | (119) | ||||||||||||||||
Intersegment eliminations | 136 | — | — | — | — | 136 | ||||||||||||||||
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Time Warner | $ | 993 | $ | (5) | $ | (5) | $ | — | $ | (12) | $ 971 | |||||||||||
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Margin(a) | 15.9% | (0.1)% | (0.1)% | —% | (0.1)% | 15.6% | ||||||||||||||||
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. |
11
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
Nine Months Ended September 30, 2015
| Adjusted Operating Income (Loss) | Asset Impairments | Gain (Loss) on Operating Assets, Net | Venezuelan Foreign Currency Loss | Other | Operating | |||||||||||||||||
Turner | $ | 3,329 | $ | (1) | $ | — | $ | (17) | $ | (1) | $ 3,310 | |||||||||||
Home Box Office | 1,485 | — | — | — | — | 1,485 | ||||||||||||||||
Warner Bros. | 1,062 | (1) | (1) | (5) | (5) | 1,050 | ||||||||||||||||
Corporate | (249) | (6) | — | — | (2) | (257) | ||||||||||||||||
Intersegment eliminations | (109) | — | — | — | — | (109) | ||||||||||||||||
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Time Warner | $ | 5,518 | $ | (8) | $ | (1) | $ | (22) | $ | (8) | $ 5,479 | |||||||||||
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Margin(a) | 26.2% | —% | —% | (0.1)% | (0.1)% | 26.0% | ||||||||||||||||
| Nine Months Ended September 30, 2014 | ||||||||||||||||||||||
| Adjusted Operating Income (Loss) | Asset Impairments | Gain (Loss) on Operating Assets, Net | Venezuelan Foreign Currency Loss | Other | Operating | |||||||||||||||||
Turner | $ | 2,185 | $ | (15) | $ | 10 | $ | — | $ | (14) | $ 2,166 | |||||||||||
Home Box Office | 1,396 | (4) | — | — | — | 1,392 | ||||||||||||||||
Warner Bros. | 857 | (5) | — | — | (12) | 840 | ||||||||||||||||
Corporate | (336) | (7) | 441 | — | (45) | 53 | ||||||||||||||||
Intersegment eliminations | 135 | — | — | — | — | 135 | ||||||||||||||||
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Time Warner | $ | 4,237 | $ | (31) | $ | 451 | $ | — | $ | (71) | $ 4,586 | |||||||||||
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Margin(a) | 21.4% | (0.2)% | 2.3% | —% | (0.4)% | 23.1% | ||||||||||||||||
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. |
12
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)
Reconciliation of
Adjusted EPS to Diluted Income per Common Share from Continuing Operations attributable to Time Warner Inc. shareholders
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Asset impairments | $ | (7) | $ | (5) | $ | (8) | �� | $ (31) | ||||||
Gain (loss) on operating assets, net | 2 | (5) | (1) | 451 | ||||||||||
Venezuelan foreign currency loss | — | — | (22) | — | ||||||||||
Other | (3) | (12) | (8) | (71) | ||||||||||
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Impact on Operating Income | (8) | (22) | (39) | 349 | ||||||||||
Investment gains (losses), net | 15 | (78) | (70) | (57) | ||||||||||
Amounts related to the separation of Time Warner Cable Inc. | (4) | — | (8) | (1) | ||||||||||
Amounts related to the disposition of Warner Music Group | — | 1 | — | — | ||||||||||
Amounts related to the separation of Time Inc. | (2) | 2 | (7) | 2 | ||||||||||
Premiums paid and costs incurred on debt redemption | (21) | — | (72) | — | ||||||||||
Items affecting comparability relating to equity method investments | 17 | (5) | (4) | (25) | ||||||||||
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Pretax impact | (3) | (102) | (200) | 268 | ||||||||||
Income tax impact of above items | 9 | 7 | 55 | 84 | ||||||||||
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Impact of items affecting comparability on income from continuing operations | $ | 6 | $ | (95) | $ | (145) | $ 352 | |||||||
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Amounts attributable to Time Warner Inc. shareholders: | ||||||||||||||
Income from continuing operations | $ | 1,035 | $ | 966 | $ | 2,939 | $ 3,174 | |||||||
Less Impact of items affecting comparability on income from continuing operations | 6 | (95) | (145) | 352 | ||||||||||
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Adjusted income from continuing operations | $ | 1,029 | $ | 1,061 | $ | 3,084 | $ 2,822 | |||||||
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Per share information attributable to Time Warner Inc. common shareholders: | ||||||||||||||
Diluted net income per common share from continuing operations | $ | 1.26 | $ | 1.11 | $ | 3.52 | $ 3.56 | |||||||
Less Impact of items affecting comparability on diluted net income per common share from continuing operations | 0.01 | (0.11) | (0.17) | 0.39 | ||||||||||
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Adjusted EPS | $ | 1.25 | $ | 1.22 | $ | 3.69 | $ 3.17 | |||||||
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Average diluted common shares outstanding | 824.1 | 870.2 | 835.5 | 891.6 | ||||||||||
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Asset Impairments
During the three and nine months ended September 30, 2015, the Company recognized asset impairments of $7 million and $8 million, respectively, which consisted of $5 million and $6 million, respectively, at Corporate primarily related to certain internally developed software, and $1 million for both the three and nine months ended September 30, 2015 at both the Turner and Warner Bros. segments relating to miscellaneous assets.
13
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)
During the three months ended September 30, 2014, the Company recognized asset impairments of $5 million, consisting of $4 million at the Turner segment related to miscellaneous assets and $1 million at Corporate related to certain internally developed software. For the nine months ended September 30, 2014, the Company recognized asset impairments of $15 million at the Turner segment related to miscellaneous assets, $4 million at the Home Box Office segment related to the noncash impairment of an international tradename and $5 million and $7 million at the Warner Bros. segment and Corporate, respectively, related to certain internally developed software.
Gain (Loss) on Operating Assets, Net
For the three and nine months ended September 30, 2015, the Company recognized a $2 million gain on operating assets at the Turner segment reflecting a $3 million gain upon its acquisition of the controlling interest of iStreamPlanet Co., LLC and a $1 million loss on the sale of a business. For the nine months ended September 30, 2015, the Company also recognized $2 million of net losses at the Turner segment related to the remeasurement of certain previously held investments upon the Turner segment’s acquisition of controlling interests in those investments as well as a $1 million loss at the Warner Bros. segment.
For the three and nine months ended September 30, 2014, the Company recognized a $5 million loss on operating assets at the Turner segment related to the shutdown of a business. For the nine months ended September 30, 2014, the Company also recognized $15 million of gains at the Turner segment, reflecting a $2 million gain primarily related to the sale of a building in South America and a $13 million gain related to the sale of Zite, Inc., a news content aggregation and recommendation platform, and a $441 million gain at Corporate in connection with the sale and leaseback of the Company’s space in Time Warner Center.
Venezuelan Foreign Currency Loss
For the nine months ended September 30, 2015, the Company recognized a pretax foreign exchange loss of $22 million, consisting of $17 million at the Turner segment and $5 million at the Warner Bros. segment, related to a change in the foreign currency exchange rate used by the Company for remeasuring its Venezuelan net monetary assets from the SICAD 2 rate to the Simadi rate. The Venezuelan foreign currency loss is included in Selling, general and administrative expenses in the accompanying Consolidated Statement of Operations.
Other
Other reflects external costs related to mergers, acquisitions or dispositions of $3 million and $8 million for the three and nine months ended September 30, 2015, respectively, and $12 million and $71 million for the three and nine months ended September 30, 2014, respectively. External costs related to mergers, acquisitions or dispositions for the three and nine months ended September 30, 2015 consisted of $0 and $1 million, respectively, at the Turner segment, $2 million and $5 million, respectively, at the Warner Bros. segment and $1 million and $2 million, respectively, at Corporate. External costs related to mergers, acquisitions or dispositions for the three and nine months ended September 30, 2014 consisted of $4 million and $14 million, respectively, at the Turner segment primarily related to exit costs in connection with the shutdown of CNN Latino, $4 million and $12 million, respectively, at the Warner Bros. segment primarily related to the acquisition of the international operations of Eyeworks Group and $4 million and $45 million, respectively, at Corporate related to the legal and structural separation of Time Inc. from the Company (the “Time Separation”).
External costs related to mergers, acquisitions or dispositions are included in Selling, general and administrative expenses in the accompanying Consolidated Statement of Operations.
Investment Gains (Losses), Net
For the three and nine months ended September 30, 2015, the Company recognized $15 million of net investment gains and $70 million of net investment losses consisting of $5 million and $110 million, respectively, of losses related to fair value adjustments on warrants to purchase common stock of Central European Media Enterprises Ltd. (“CME”) held by the Company and $20 million and $40 million, respectively, of net miscellaneous investment gains.
14
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)
For the three and nine months ended September 30, 2014, the Company recognized $78 million and $57 million, respectively, of net miscellaneous investment losses, consisting of $58 million and $59 million, respectively, of losses related to fair value adjustments on warrants to purchase CME common stock held by the Company and $20 million of net miscellaneous investment losses for the three months ended September 30, 2014 and $2 million of net miscellaneous investment gains for the nine months ended September 30, 2014.
Amounts Related to the Separation of Time Warner Cable Inc.
For the three and nine months ended September 30, 2015, the Company recognized $4 million of other loss related to payments made to Time Warner Cable Inc. (“TWC”) in accordance with a tax sharing agreement with TWC and for the nine months ended September 30, 2015, the Company also recognized $4 million of other loss related to changes in the value of a TWC tax indemnification receivable. The Company recognized other expense of $1 million for the nine months ended September 30, 2014 related to the expiration, exercise and net change in the estimated fair value of Time Warner equity awards held by TWC employees. The amounts related to the separation of Time Warner Cable Inc. have been reflected in Other loss, net in the accompanying Consolidated Statement of Operations.
Amounts Related to the Disposition of Warner Music Group
For the three months ended September 30, 2014, the Company recognized other income of $1 million primarily related to a tax indemnification obligation associated with the disposition of Warner Music Group (“WMG”) in 2004. This amount has been reflected in Other loss, net in the accompanying Consolidated Statement of Operations.
Amounts Related to the Time Separation
For the three and nine months ended September 30, 2015, the Company recognized $2 million and $7 million, respectively, of other loss primarily reflecting pension and other retirement benefits related to employees and former employees of Time Inc. For the three and nine months ended September 30, 2014, the Company recognized $2 million of other income related to the expiration, exercise and net change in the estimated fair value of Time Warner equity awards held by certain Time Inc. employees.
Premiums Paid and Costs Incurred on Debt Redemption
For the three and nine months ended September 30, 2015, the Company recognized $21 million of premiums paid and costs incurred principally on the redemption of $313 million aggregate principal amount of its 5.875% Notes due 2016 (the “2016 Notes”). For the nine months ended September 30, 2015, the Company also recognized $51 million of premiums paid and costs incurred on the purchase of $687 million aggregate principal amount of its 2016 Notes through a tender offer. The premiums paid and costs incurred on debt redemption were recorded in Other loss, net in the accompanying Consolidated Statement of Operations.
Items Affecting Comparability Relating to Equity Method Investments
For the three and nine months ended September 30, 2015, the Company recognized a $3 million asset impairment recorded by an equity method investee for both periods and $2 million of income and $1 million of losses, respectively, from discontinued operations recorded by an equity method investee. In addition, for the three months ended September 30, 2015, the Company recognized an $18 million reversal of an accrual related to government investigations recorded by an equity method investee. For the three and nine months ended September 30, 2014, the Company recognized $4 million of expenses related to a government investigation of an equity method investee and $1 million and $9 million, respectively, of losses related to discontinued operations recorded by an equity method investee. In addition, for the nine months ended September 30, 2014, the Company recognized a $12 million loss on the extinguishment of debt recorded by an equity method investee. These amounts have been reflected in Other loss, net in the Consolidated Statement of Operations.
15
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)
Income Tax Impact
The income tax impact reflects the estimated tax provision or tax benefit associated with each item affecting comparability. The estimated tax provision or tax benefit can vary based on certain factors, including the taxability or deductibility of the items and foreign tax on certain items.
16
TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions)
Reconciliation of Free Cash Flow to Cash Provided by Operations from Continuing Operations
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Cash provided by operations from continuing operations | $ | 1,201 | $ | 617 | $ | 3,001 | $ 2,674 | |||||||
Add external costs related to mergers, acquisitions, investments or dispositions and contingent consideration payments | 1 | 28 | 9 | 60 | ||||||||||
Add excess tax benefits from equity instruments | 21 | 43 | 141 | 138 | ||||||||||
Less capital expenditures | (96) | (110) | (250) | (316) | ||||||||||
Less principal payments on capital leases | (3) | (3) | (8) | (8) | ||||||||||
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Free Cash Flow | $ | 1,124 | $ | 575 | $ | 2,893 | $ 2,548 | |||||||
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17
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and entertainment company, whose businesses include television networks and film and TV entertainment. Time Warner classifies its operations into three reportable segments:Turner: consisting principally of cable networks and digital media properties;Home Box Office: consisting principally of premium pay television services domestically and premium pay and basic tier television services internationally; andWarner Bros.: consisting principally of television, feature film, home video and videogame production and distribution.
Note 2. INTERSEGMENT TRANSACTIONS
Revenues recognized by Time Warner’s segments on intersegment transactions are as follows (millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Intersegment Revenues | ||||||||||||||
Turner | $ | 23 | $ | 19 | $ | 81 | $ 76 | |||||||
Home Box Office | 4 | 8 | 22 | 27 | ||||||||||
Warner Bros. | 364 | 255 | 683 | 623 | ||||||||||
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Total intersegment revenues | $ | 391 | $ | 282 | $ | 786 | $ 726 | |||||||
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Note 3. WARNER BROS. HOME VIDEO AND ELECTRONIC DELIVERY REVENUES
Home video and electronic delivery of theatrical and television product revenues are as follows (millions):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||
| 2015 | 2014 | 2015 | 2014 | |||||||||||
Home video and electronic delivery of theatrical product revenues | $ | 355 | $ | 390 | $ | 1,185 | $ 1,335 | |||||||
Home video and electronic delivery of television product revenues | 143 | 144 | 341 | 368 | ||||||||||
Note 4. DISCONTINUED OPERATIONS, NET OF TAX
Discontinued operations, net of tax for the nine months ended September 30, 2015 was income of $37 million primarily related to the final resolution of a tax indemnification obligation associated with the disposition of WMG. Discontinued operations, net of tax for the three and nine months ended September 30, 2014 was income of $1 million and a loss of $65 million, respectively, primarily related to the Time Separation.
18