Time Warner Inc. Reports Fourth-Quarter and Full-Year 2012 Results

Time Warner Inc. Reports Fourth-Quarter and Full-Year 2012 Results

Fourth-Quarter and Full-Year Highlights

• Fourth Quarter Adjusted Operating Income grew 16%, driven by record profits at Networks and Film and TV Entertainment

• Company posted record quarterly Adjusted EPS of $1.17 in the fourth quarter, up 24%

• Adjusted Operating Income grew 4% in 2012 to $6.1 billion

• Adjusted EPS rose 13% in 2012 to $3.28

• Company repurchased 80.4million shares for $3.3 billion in 2012

• Board authorizedan 11% increase in quarterly dividend and new $4 billion stock repurchase program

NEW YORK--(BUSINESS WIRE)-- Time Warner Inc. (NYS: TWX) today reported financial results for the three months and full year ended December 31, 2012.

Chairman and Chief Executive Officer Jeff Bewkes said: "In 2012, we had another strong year financially and operationally while we laid the foundation for continued growth. For the year, Adjusted Operating Income grew 4% to a record $6.1 billion, and Adjusted EPS rose 13% to $3.28. And, in the fourth quarter, both our Networks and our Film and TV Entertainment segments achieved record profits, with our overall Adjusted Operating Income up 16% and Adjusted EPS up 24%. Last year, we also continued to successfully execute against our key strategic priorities, which are to invest aggressively in our content, to lead the digital transition of our industries, to expand internationally and to exercise financial discipline in everything we do. That was evident as HBO won more Primetime Emmy and Golden Globe Awards than any other network; TBS was the number one ad-supported cable network in primetime among adults 18-34; TNT had 5 of the top 10 original programs on ad-supported cable; CNN won election night; Warner Bros. Television again produced more primetime hits than any other studio; Warner Bros. achieved global success and acclaim with films like The Dark Knight Rises, The Hobbit: An Unexpected Journey and Argo; and Time Inc. increased its market share in a difficult publishing environment."

Mr. Bewkes continued: "At the same time, we continued to expand our TV Everywhere offerings at Turner and HBO, put the full weight of Warner Bros. behind the UltraViolet home entertainment industry standard for storing digital movies in the cloud and launched digital subscriptions for Time Inc.'s domestic magazines on all major tablet platforms. We also continued to return capital to our stockholders, paying over $1 billion in dividends in 2012 and buying back $3.3 billion of our stock. Reinforcing our commitment to return capital and our confidence in our continued growth, this morning we announced that Time Warner's board authorized a new $4 billion repurchase program beginning with purchases made in January 2013 and an 11% increase in our dividend."

Full-Year Company Results

Full-year Revenues decreased 1% from 2011 to $28.7 billion, as growth at the Networks segment was more than offset by declines at the Film and TV Entertainment and Publishing segments. Adjusted Operating Income rose 4% from 2011, to $6.1 billion, due to growth at the Networks segment, partially offset by declines at the Publishing and Film and TV Entertainment segments. Operating Income increased 2% from 2011 to $5.9 billion. Adjusted Operating Income and Operating Income margins were 21% in 2012, up from 20% in 2011.

The Company posted 2012 Adjusted Diluted Net Income per Common Share ("Adjusted EPS") of $3.28,up 13% from $2.89 in the prior year. Diluted Income per Common Share was $3.09compared to $2.71 in 2011.

In 2012, Cash Provided by Operations from Continuing Operations reached $3.5 billion, and Free Cash Flow totaled $2.9 billion. As of December 31, 2012, Net Debt was $17.0billion, up from $16.0 billion at the end of 2011, due to the funding of share repurchases and dividends, partially offset by the generation of Free Cash Flow and proceeds from the exercise of stock options.

Fourth-Quarter Company Results

In the fourth quarter of 2012, Revenues were essentially flat at $8.2 billion, as growth at the Networks segment wasoffset by declines at the Film and TV Entertainment and Publishing segments. Adjusted Operating Income increased 16%, to $2.0 billion, in the quarter due to growth at the Networks and Film and TV Entertainment segments, partially offset by a decline at the Publishing segment. Operating Income increased 21% to $2.0 billion. Adjusted Operating Income and Operating Income margins were 24% and 25% for the fourth quarter of 2012, respectively, compared to 21% and 20%, respectively, in the prior year period.

The Company posted Adjusted EPS of $1.17, up 24% from $0.94 for the year-ago quarter. Diluted Income per Common Share was $1.21compared to $0.76 in the prior year quarter.

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, 2012 through February 1, 2013, the Company repurchased approximately 84million shares of common stock for approximately $3.5 billion. These amounts reflect the purchase of approximately 24 million shares of common stock for approximately $1.1 billion since the amounts reported in the Company's third quarter earnings release issued on November 7, 2012.

In January 2013, the Company's Board of Directors authorized a total of $4 billion in share repurchases beginning January 1, 2013, which replaces the amount remaining under the prior authorization.

Regular Quarterly Dividend

On February 5, 2013, the Company's Board of Directors increased the Company's regular quarterly dividend by 11% to $0.2875 per share.

Segment Performance

Presentation of Financial Information

The schedule below reflects Time Warner's financial performance for the three months and year ended December 31 by line of business (millions).

Presented below is a discussion of the performance of Time Warner's segments for the 2012 fourth quarter and full year. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.

NETWORKS (Turner Broadcasting and HBO)

Full-Year Results

Revenues rose 4% ($550 million) to $14.2 billion, benefiting from growth of 6% ($504 million) in Subscription revenues and 3% ($119 million) in Advertising revenues, which was partially offset by a 9% ($101 million) decline in Content revenues. The increase in Subscription revenues resulted mainly from higher domestic rates and, to a lesser extent, international growth and an increase in domestic subscribers at HBO, partially offset by the negative effect of foreign currency exchange rates. Advertising revenues benefited primarily from growth at Turner's domestic networks, due principally to higher pricing and an increase in the number of NBA games. Growth at Turner's domestic networks was partially offset by decreases at its international networks, which were due primarily to the shutdown of Turner's general entertainment network, Imagine, in India and TNT television operations in Turkey in the first half of 2012 and the negative effect of foreign currency exchange rates. Content revenues declined due to lower licensing revenues compared to the prior year, which included a domestic cable sale of Sex and the City and a full year of licensing revenues from the TNT television operations in Turkey.

Adjusted Operating Income increased 10% ($450 million) to $4.9 billion, reflecting higher revenues, partly offset by increased expenses, including higher programming costs. Programming costs grew 2%, primarily reflecting higher costs for sports programming, due mostly to an increase in the number of NBA games, and original series, partially offset by the shutdown of Imagine and the TNT television operations in Turkey. Operating Income increased 7% ($303 million) to $4.7 billion. 2012 included $192 million in charges related to the shutdown of the Turner operations in India and Turkey.

TNT finished 2012 with five of the top ten original series on ad-supported cable for the year, more than any other network. TBS ranked as ad-supported cable's #1 primetime network among adults 18-34 and #3 among adults 18-49 in 2012. Ratings for TBS among adults 18-49 were up nearly 20% in primetime for the year. Adult Swim closed out the year as the #1 ad-supported cable network in total day delivery for adults 18-34. CNN continued to reach more viewers than any other cable news network in 2012 and was the #1 cable news network on election night among adults 25-54.

In 2012, HBO aired three of the top five rated original series in its history and received the most Primetime Emmy awards of any network for the eleventh year in a row. In recent months, HBO extended its domestic output deals with both Twentieth Century Fox and Universal Pictures well into the next decade, helping solidify its position as the leading premium pay television service for first-run theatrical films. During 2012, HBO launched premium pay television services in the Netherlands and the Nordic region and announced plans to launch a premium pay television service in India. At the 70^th Annual Golden Globe Awards, HBO won five awards, the most of any network, including Best Television Series - Comedy or Musical for Girls and Best Mini-Series or Motion Picture Made for Television for Game Change.

Fourth-Quarter Results

Revenues increased 5% ($166 million) to $3.7 billion, including increases of 7% ($144 million) in Subscription revenues and 3% ($38 million) in Advertising revenues, partially offset by a decrease of 9% ($29 million) in Content revenues. Similar to the full year results, the increase in Subscription revenues resulted mainly from higher domestic rates and, to a lesser extent, an increase in domestic subscribers at HBO and international growth, partially offset by the negative effect of foreign currency exchange rates. Advertising revenues benefited from domestic growth due to higher pricing, an increase in the number of NBA games and higher ratings at CNN due to the 2012 U.S. presidential election. This growth was partly offset by decreases at Turner's international networks, which were due primarily to the shutdown of the Turner operations in India and Turkey, described above, and the negative effect of foreign currency exchange rates. Content revenues decreased due mainly to the shutdown of the TNT television operations in Turkey. Adjusted Operating Income rose 17% ($192 million) to $1.3 billion, driven by revenue growth and lower expenses, including lower programming expenses due to timing. Operating Income rose 21% ($240 million) to $1.4 billion.

FILM AND TV ENTERTAINMENT (Warner Bros.)

Full-Year Results

Revenues decreased 5% ($620 million) to $12.0 billion, due mainly to difficult comparisons to 2011. The prior year included significant revenues from the last two Harry Potter films, videogame revenues from Batman: Arkham City and Mortal Kombat 9 and television license fees from the off-network availabilities of The Big Bang Theory and Friends. The decline was offset in part by an increase in initial telecast fees, international syndication revenues and new subscription video-on-demand distribution agreements.

Adjusted Operating Income declined 3% ($42 million) to $1.2 billion, due mainly to lower theatrical and videogames revenues, offset partially by higher television revenues and lower print and advertising costs due to fewer theatrical releases during the year. Operating Income decreased 3% ($35 million) to $1.2 billion.

In 2012, Warner Bros. films grossed $4.3 billion at the worldwide box office, led by The Dark Knight Rises and The Hobbit: An Unexpected Journey, ranking #2. Warner Bros. also achieved the #2 spot in domestic box office share in 2012, with $1.7 billion. In 2012, Warner Bros. remained #1 domestically in overall home entertainment and in each of DVD sales, Blu-ray Disc sales, VOD and EST. For the 2012-2013 television season, Warner Bros. has produced over 55 broadcast and cable series and is again the leading supplier of primetime programming to the broadcast networks. Season-to-date through January 27, Warner Bros. accounts for six of the ten top comedies on broadcast TV, including The Big Bang Theory, TV's #1 comedy series. At the 70^th Annual Golden Globe Awards, Warner Bros. won two awards, including Best Motion Picture - Drama for Argo. For the 85^th Academy Awards, Warner Bros. films received 10 nominations, including Best Picture for Argo.

Fourth-Quarter Results

Revenues decreased 4% ($167 million) to $3.7 billion, due mainly to difficult comparisons to the year ago period. The prior year's quarter included revenues from the home entertainment release of Harry Potter and the Deathly Hallows: Part 2 and from the videogame release of Batman: Arkham City. The decline was offset in part by the global theatrical performance of The Hobbit: An Unexpected Journey and Argo. Adjusted Operating Income increased 28% ($122 million) to $555 million due mainly to the timing and performance of theatrical releases, lower print and advertising expenses, and mix of television product, offset partially by the decline in home entertainment and videogames revenues. Operating Income increased 29% ($125 million) to $552 million.

PUBLISHING (Time Inc.)

Full-Year Results

Revenues declined 7% ($241 million) to $3.4 billion, reflecting decreases of 5% ($104 million) in Advertising revenues, 5% ($61 million) in Subscription revenues and 21% ($83 million) in Other revenues. Advertising revenues decreased due to lower magazine advertising demand, partly offset by revenues from SI.com and Golf.com, the management of which was transferred from Turner to Time Inc. during the second quarter of 2012. The decrease in Subscription revenues was due primarily to lower domestic and international newsstand sales. Other revenues declined mainly due to the absence of Time Inc.'s school fundraising business, QSP, which the Company sold in the first quarter of 2012. For the year, the transfer of SI.com and Golf.com benefited Advertising revenues and negatively impacted Other revenues by similar amounts.

Adjusted Operating Income decreased 20% ($117 million) to $463 million due to the decline in revenues, offset partially by cost savings initiatives. Operating Income decreased 25% ($143 million) to $420 million.

Time Inc.'s 2012 share of overall domestic advertising was 21.5%, up from 21.0% in 2011, again leading the industry (Publishers Information Bureau data).

Fourth-Quarter Results

Revenues declined 7% ($77 million) to $967 million, due mainly to decreases of 39% ($52 million) in Other revenues and 4% ($24 million) in Advertising revenues, while Subscription revenues were flat. Other revenues declined due to the absence of QSP. Adjusted Operating Income decreased 10% ($23 million) to $201 million, primarily due to the absence of QSP. Operating Income decreased 3% ($7 million) to $200 million.

CONSOLIDATED NET INCOME AND PER SHARE RESULTS

Full-Year Results

For the year ended December 31, 2012, Adjusted EPS was $3.28 compared to $2.89 in 2011. The increase in Adjusted EPS primarily reflected higher Adjusted Operating Income and fewer shares outstanding.

The Company reported Net Income attributable to Time Warner Inc. shareholders of$3.0billion, or $3.09per diluted common share in 2012. This compares to Net Income attributable to Time Warner Inc. shareholders in 2011 of$2.9billion, or $2.71per diluted common share.

For the years ended December 31, 2012 and 2011, the Company reported Net Income of$3.0billion and $2.9billion, respectively.

Fourth-Quarter Results

Adjusted EPS was $1.17for the three months ended December 31, 2012, compared to $0.94 in last year's fourth quarter. The increase in Adjusted EPS primarily reflected higher Adjusted Operating Income and fewer shares outstanding.

For the three months ended December 31, 2012, the Company reported Net Income attributable to Time Warner Inc. shareholders of$1.2billion, or $1.21per diluted common share. This compares to Net Income attributable to Time Warner Inc. shareholders in 2011's fourth quarter of$773million, or $0.76per diluted common share.

For the fourth quarter of 2012 and 2011, the Company reported Net Income of$1.2billion and $772million, respectively.

USE OF NON-GAAP FINANCIAL MEASURES

The Company utilizes Adjusted Operating Income (Loss) and Adjusted Operating Income margin, among other measures, to evaluate the perfor