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Time Warner Reaffirms 2005 Full-Year Business Outlook
NEW YORK --(Business Wire)-- Nov. 2, 2005 -- Time Warner Inc. (NYSE:TWX) today reaffirmed its 2005 full-year business outlook.
Time Warner reaffirmed its expectation that its 2005 full-year growth rate in Adjusted Operating Income before Depreciation and Amortization will be in the high-single digits, off a base of $9.9 billion in 2004. This expectation reflects anticipated revenue gains and margin expansion.
In addition, Time Warner continues to expect that it will convert between 30% to 40% of its 2005 Adjusted Operating Income before Depreciation and Amortization into Free Cash Flow.
The outlook above does not include the impact of any future merger and restructuring charges that have not been identified and sales and acquisitions of operating assets that may occur from time to time due to management decisions and changing business circumstances, as well as the impact of any future reserves or payments made in connection with the pending securities litigation. The Company is currently unable to forecast precisely the timing and magnitude of any such events.
Use of Operating Income before Depreciation and Amortization, Adjusted Operating Income before Depreciation and Amortization and Free Cash Flow
The Company utilizes Operating Income before Depreciation and Amortization, among other measures, to evaluate the performance of its businesses. The Company also evaluates the performance of its businesses using Operating Income before Depreciation and Amortization excluding the impact of noncash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales, legal reserves related to the government investigations and legal reserves related to securities litigation (referred to herein as Adjusted Operating Income before Depreciation and Amortization). Both Operating Income before Depreciation and Amortization and Adjusted Operating Income before Depreciation and Amortization are considered important indicators of the operational strength of the Company's businesses. Operating Income before Depreciation and Amortization eliminates the uneven effect across all business segments of considerable amounts of noncash depreciation of tangible assets and amortization of certain intangible assets that were recognized in business combinations. A limitation of this measure, however, is that it does not reflect the periodic costs of certain capitalized tangible and intangible assets used in generating revenues in the Company's businesses. Moreover, Adjusted Operating Income before Depreciation and Amortization does not reflect the diminution in value of goodwill and intangible assets or gains and losses on asset sales. Management evaluates the costs of such tangible and intangible assets, the impact of related impairments, as well as asset sales through other financial measures, such as capital expenditures, investment spending and return on capital.
Free Cash Flow is Cash Provided by Operations (as defined by U.S. generally accepted accounting principles) plus payments related to securities litigation, less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases, and partnership distributions, if any. Free Cash Flow is considered to be 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 limitation of this measure, however, is that it does not reflect securities litigation payments, which reduce liquidity. Free Cash Flow includes the impact of the settlement with the Department of Justice ($210 million in 2004) and the settlement with the Securities and Exchange Commission ($300 million in 2005).
Operating Income before Depreciation and Amortization, Adjusted Operating Income before Depreciation and Amortization and Free Cash Flow should be considered in addition to, not as a substitute for, the Company's Operating Income, Net Income and various cash flow measures (e.g., Cash Provided by Operations), as well as other measures of financial performance and liquidity reported in accordance with U.S. generally accepted accounting principles.
About Time Warner Inc.
Time Warner Inc. is a leading media and entertainment company, whose businesses include interactive services, cable systems, filmed entertainment, television networks and publishing.
Information on Earnings Release and Conference Call
In a separate release issued today, Time Warner Inc. reported financial results for its third quarter ended September 30, 2005.
The Company's earnings conference call can be heard live at 8:30 am ET on Wednesday, November 2, 2005. To listen to the call, visit www.timewarner.com/investors or AOL Keyword: IR.
Caution Concerning Forward-Looking Statements
This document includes certain 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 and/or regulatory factors, sales of business assets, and the potential impact of future decisions by management that may result in merger and restructuring charges, as well as the potential impact of any future impairment charges to goodwill or other intangible assets. More detailed information about these factors may be found in filings by Time Warner Inc. with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K and Quarterly Report 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. -0- *T TIME WARNER INC. RECONCILIATION OF GUIDANCE November 2, 2005 ($ in millions) (Unaudited) Year Ended December 31, 2004 Reconciliation of 2005 Guidance ----------------- ----------------------- Reconciliation of Adjusted Operating Income before Depreciation and Amortization to Operating Income: (1) Time Warner Inc. ----------------- Adjusted Operating Income before Depreciation and High single digit Amortization $ 9,871 growth Depreciation and Low to high single Amortization (3,207) digit growth Impairment of goodwill, intangible and fixed No further impairment assets (10) expected (2) Gains and losses from asset No further gains/losses sales 21 expected (3) No further reserves Legal reserves related to related to government the government investigations investigations (4) (510) expected (4) Unable to estimate further reserves for Legal reserves related to pending securities securities litigation (5) - litigation (5) ----------------- Decrease in absolute Operating Income $ 6,165 dollar amount ================= Free Cash Flow conversion between 30% to 40% of Adjusted Operating Income before Depreciation Free Cash Flow (6) $ 3,280 and Amortization Capital expenditures and product development costs plus principal payments on capital leases (all from Increase in absolute continuing operations) 3,215 dollar amount Payments related to Increase in absolute securities litigation (7) - dollar amount (7) ----------------- Cash provided by continuing operations Cash provided by continuing exceeding 85% of operations 6,495 Operating Income Cash provided by Decrease in absolute discontinued operations 123 dollar amount ----------------- Cash Provided by Operations exceeding 85% of Operating Cash Provided by Operations $ 6,618 Income ================= Notes: ------- (1) Adjusted Operating Income 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, legal reserves related to the government investigations, and legal reserves related to securities litigation. (2) Year-to-date September 30, 2005, the Company has recognized $24 million in noncash impairments of goodwill. (3) Year-to-date September 30, 2005, the Company has recognized $18 million in gains from asset sales. (4) In 2004, the Company established $510 million of legal reserves related to the government investigations. (5) Year-to-date September 30, 2005, the Company has established $3.0 billion of legal reserves related to securities litigation. (6) Free Cash Flow is defined as Cash Provided by Operations (as defined by U.S. generally accepted accounting principles) plus payments related to securities litigation, less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases and partnership distributions, if any. Free Cash Flow includes the impact of settlements with the Department of Justice ($210 million in 2004) and the Securities and Exchange Commission ($300 million in 2005). (7) In October 2005, the Company paid $2.4 billion into a settlement fund related to securities litigation. *T
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