Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
TWX > SEC Filings for TWX > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for TIME WARNER INC.

Form 10-Q for TIME WARNER INC.


7-Nov-2012

Quarterly Report


MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION

INTRODUCTION

Management's discussion and analysis of results of operations and financial condition ("MD&A") is a supplement to the accompanying consolidated financial statements and provides additional information on Time Warner Inc.'s ("Time Warner" or the "Company") businesses, current developments, financial condition, cash flows and results of operations. MD&A is organized as follows:

Overview. This section provides a general description of Time Warner's business segments, as well as recent developments the Company believes are important in understanding the results of operations and financial condition or in understanding anticipated future trends.

Results of operations. This section provides an analysis of the Company's results of operations for the three and nine months ended September 30, 2012. This analysis is presented on both a consolidated and a business segment basis. In addition, a brief description of transactions and other items that affect the comparability of the results being analyzed is included.

Financial condition and liquidity. This section provides an analysis of the Company's financial condition as of September 30, 2012 and cash flows for the nine months ended September 30, 2012.

Caution concerning forward-looking statements. This section provides a description of the use of forward-looking information appearing in this report, including in MD&A and the consolidated financial statements.


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

OVERVIEW

Time Warner is a leading media and entertainment company whose major businesses encompass an array of the most respected and successful media brands. Among the Company's brands are TNT, TBS, CNN, HBO, Cinemax, Warner Bros., New Line Cinema, People, Sports Illustrated and Time. During the nine months ended September 30, 2012, the Company generated Revenues of $20.565 billion (down 1% from $20.781 billion in 2011), Operating Income of $3.891 billion (down 6% from $4.132 billion in 2011), Net Income attributable to Time Warner shareholders of $1.851 billion (down 12% from $2.113 billion in 2011) and Cash provided by operations from continuing operations of $2.297 billion (up 7% from $2.146 billion in 2011).

Time Warner Businesses

Time Warner classifies its operations into three reportable segments: Networks, Film and TV Entertainment and Publishing. For additional information regarding Time Warner's segments, refer to Note 13, "Segment Information" to the accompanying consolidated financial statements. Effective for the first quarter of 2012, the Company changed the name of its Filmed Entertainment reportable segment to Film and TV Entertainment. This change did not affect the composition of the segment; accordingly, all prior period financial information related to this reportable segment was unaffected.

Networks. Time Warner's Networks segment consists of Turner Broadcasting System, Inc. ("Turner") and Home Box Office, Inc. ("Home Box Office"). During the nine months ended September 30, 2012, the Networks segment recorded Revenues of $10.539 billion (51% of the Company's total Revenues) and $3.341 billion in Operating Income.

Turner operates domestic and international networks, including such recognized brands as TNT, TBS, truTV, CNN and Cartoon Network, which are among the leaders in advertising-supported television networks. The Turner networks generate revenues principally from providing programming to affiliates that have contracted to receive and distribute this programming and from the sale of advertising. Turner also provides online and mobile offerings for on-demand viewing of programs on its networks and live streaming of CNN, HLN and Cartoon Network to authenticated subscribers. Turner also operates various websites, including CNN.com, NCAA.com, NASCAR.com and CartoonNetwork.com, that generate revenues principally from the sale of advertising and sponsorships.

Home Box Office operates the HBO and Cinemax domestic multi-channel premium pay television services, with the HBO service ranking as the most widely distributed domestic multi-channel premium pay television service. HBO- and Cinemax-branded premium pay and basic tier television services are distributed in more than 60 countries in Latin America, Asia and Europe. HBO and Cinemax domestic pay television subscribers have access to the authenticated HBO GO and MAX GO streaming services, respectively, on various online and mobile platforms, and an authenticated HBO GO streaming service is available to international premium pay television subscribers of HBO in a number of countries. Home Box Office generates revenues principally from providing programming to affiliates that have contracted to receive and distribute such programming to their customers who subscribe to the HBO or Cinemax services. An additional source of revenues for Home Box Office is the licensing of its original programming, including Game of Thrones, True Blood and Boardwalk Empire.

During the nine months ended September 30, 2012, Turner shut down its general entertainment network, Imagine, in India and its TNT television operations in Turkey (collectively, the "Imagine and TNT Turkey Shutdowns") as a result of the failure to meet performance and growth objectives. For the nine months ended September 30, 2012, the Company recognized $215 million of charges related to the Imagine and TNT Turkey Shutdowns, inclusive of a $6 million reduction of certain charges recorded during the three months ended September 30, 2012. These shutdowns will allow the Company to redirect its resources toward opportunities with stronger growth prospects. See "Transactions and Other Items Affecting Comparability" as well as Note 2, "Acquisitions and Dispositions" to the accompanying consolidated financial statements for further information.

The Company still anticipates that international expansion will continue to be an area of focus at the Networks segment for the foreseeable future.

Film and TV Entertainment. Time Warner's Film and TV Entertainment segment consists of businesses managed by the Warner Bros. Entertainment Group ("Warner Bros.") that principally produce and distribute theatrical motion pictures,


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

television shows and videogames. During the nine months ended September 30, 2012, the Film and TV Entertainment segment recorded Revenues of $8.295 billion (37% of the Company's total Revenues) and $676 million in Operating Income.

The Film and TV Entertainment segment's theatrical product revenues are generated principally through rentals from theatrical exhibition of films, including the following recently released films: Argo, The Campaign, The Dark Knight Rises, Journey 2: The Mysterious Island, Magic Mike, Project X and Wrath of the Titans, and subsequently through licensing fees received from the distribution of films on television networks and pay television programming services. Television product revenues are generated principally from the licensing of programs to television networks and pay television programming services. The segment also generates revenues for both its theatrical and television product through home video distribution on DVD and Blu-ray Discs and in various digital formats (e.g., electronic sell-through and video-on-demand). In addition, the segment generates revenues through the distribution of videogames.

Warner Bros. continues to be an industry leader in the television content business. For the 2012-2013 broadcast and cable season, Warner Bros. is producing more than 40 primetime series, with at least two series for each of the five broadcast networks (including 2 Broke Girls, Arrow, The Bachelor, The Big Bang Theory, Fringe, The Mentalist, The Middle, Mike & Molly, Person of Interest, Two and a Half Men, Vampire Diaries and The Voice) and several original series for cable television networks (including Dallas, Longmire, Major Crimes, Pretty Little Liars and Rizzoli & Isles). Internationally, Warner Bros. operates a group of local television production companies in the U.K. and the Netherlands that focus on developing non-scripted programs and formats that can be sold internationally and adapted for sale in the U.S. Warner Bros. has also begun to create locally produced versions of programs owned by the studio as well as original local television programming.

The distribution of DVDs has been one of the largest contributors to the segment's revenues and profits over the last decade. However, in recent years, home video revenues have declined as a result of several factors, including consumers shifting to subscription rental services and discount rental kiosks, which generate significantly less revenue per transaction for the Company than DVD sales; the general economic downturn in the U.S. and many regions around the world; increasing competition for consumer discretionary time and spending; piracy; and the maturation of the standard definition DVD format. Reduced consumer spending on DVDs is being partially offset by growing sales of high definition Blu-ray Discs and increased sales through electronic delivery, which have higher incremental gross margins than standard definition DVDs. The decline in consumer spending on DVDs is also being partially offset by the licensing of theatrical and television content to subscription video-on-demand providers.

Publishing. Time Warner's Publishing segment consists principally of Time Inc.'s magazine publishing and related websites, book publishing businesses and marketing services businesses. During the nine months ended September 30, 2012, the Publishing segment recorded Revenues of $2.469 billion (12% of the Company's total Revenues) and $220 million in Operating Income.

As of September 30, 2012, Time Inc. published 21 magazines in the U.S., including People, Sports Illustrated and Time, and over 70 magazines outside the U.S. All 21 of Time Inc.'s U.S. magazines are available as tablet editions. The Publishing segment generates revenues primarily from the sale of advertising, magazine subscriptions and newsstand sales. The Publishing segment is experiencing declines in its newsstand sales and print advertising as a result of market conditions in the magazine publishing industry as well as the current economic environment. The Publishing segment is pursuing a number of initiatives to help mitigate these declines, including conducting additional brand marketing; developing innovative ways to sell branded magazine content outside of traditional channels, including websites, tablets and other mobile devices; developing integrated advertising solutions that will provide greater data insight and value to advertisers; deploying a new cross-platform content management system; and improving its operating efficiency through management of its cost structure (the "Publishing Segment Initiatives").

From the fourth quarter of 2010 through the first quarter of 2012, Turner managed the SI.com and Golf.com websites, including selling the advertising for the websites, and in exchange Time Inc. received a license fee from Turner. In the second quarter of 2012, Time Inc. assumed management of these websites from Turner and, with the transfer, Time Inc. now sells the advertising for these websites and no longer receives a license fee from Turner. This change did not affect the Company's consolidated results of operations for the three and nine months ended September 30, 2012.


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

Recent Developments

Bleacher Report

During the third quarter of 2012, Turner acquired Bleacher Report, a leading sports digital property, for $170 million, net of cash acquired. See Note 2, "Acquisitions and Dispositions" to the accompanying consolidated financial statements.

2012 Debt Offering

On June 13, 2012, Time Warner issued $1.0 billion aggregate principal amount of debt securities from its shelf registration statement. See "Financial Condition and Liquidity - Outstanding Debt and Other Financing Arrangements" for more information.

CME

During the nine months ended September 30, 2012, the Company purchased additional shares of Class A common stock and one share of preferred stock that is convertible into Class A common stock of Central European Media Enterprises Ltd. ("CME"), a publicly traded media and entertainment company that operates leading television networks in six Central and Eastern European countries. As a result of these purchases, the Company increased its economic interest in CME from 34% to 49.9%. For additional information regarding the transactions with CME, refer to Note 3, "Investments" to the accompanying consolidated financial statements.

RESULTS OF OPERATIONS

Recent Accounting Guidance

See Note 1, "Description of Business and Basis of Presentation" to the accompanying consolidated financial statements for a discussion of recent accounting guidance adopted.

Transactions and Other Items Affecting Comparability

As more fully described herein and in the related notes to the accompanying
consolidated financial statements, the comparability of Time Warner's results
has been affected by transactions and certain other items in each period as
follows (millions):



                                                          Three Months Ended                            Nine Months Ended

                                                    9/30/12                 9/30/11               9/30/12               9/30/11

Asset impairments                              $             (3)       $             (4)     $           (182)      $           (15)
Gain (loss) on operating assets                               2                       1                   (40)                    6
Other                                                         -                      (6)                  (33)                  (18)

Impact on Operating Income                                   (1)                     (9)                 (255)                  (27)

Investment gains (losses), net                               (5)                      2                   (29)                   (1)
Amounts related to the separation of Time
Warner Cable Inc.                                             6                     (15)                    6                   (10)
Amounts related to the disposition of the
Warner Music Group                                            1                       -                    (5)                    -

Pretax impact                                                 1                     (22)                 (283)                  (38)
Income tax impact of above items                             (1)                      8                    59                    22

Impact of items on net income attributable
to Time Warner Inc. shareholders               $              -        $            (14)     $           (224)      $           (16)


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

In addition to the items affecting comparability described above, the Company incurred Restructuring and severance costs of $35 million and $84 million for the three and nine months ended September 30, 2012, respectively, and $30 million and $84 million for the three and nine months ended September 30, 2011, respectively. For further discussion of Restructuring and severance costs, refer to "Consolidated Results" and "Business Segment Results."

Asset Impairments

During the three and nine months ended September 30, 2012, the Company recognized a $1 million reversal and $178 million of charges, respectively, at the Networks segment in connection with the Imagine and TNT Turkey Shutdowns primarily related to certain receivables, including value added tax receivables, inventories and long-lived assets, including Goodwill. For both the three and nine months ended September 30, 2012, the Company also recognized $4 million of other miscellaneous noncash asset impairments consisting of $2 million at the Networks segment and $2 million at the Film and TV Entertainment segment.

During the three and nine months ended September 30, 2011, the Company recorded $1 million and $12 million, respectively, of noncash impairments of capitalized software costs at the Film and TV Entertainment segment as well as $3 million of other miscellaneous noncash asset impairments at the Film and TV Entertainment segment for both the three and nine months ended September 30, 2011.

Gain (Loss) on Operating Assets

For the three and nine months ended September 30, 2012, the Company recognized $1 million of income and a $41 million loss, respectively, at the Publishing segment in connection with the sale in the first quarter of 2012 of Time Inc.'s school fundraising business, QSP (the "QSP Business"). For both the three and nine months ended September 30, 2012, the Company also recorded noncash income of $1 million at the Film and TV Entertainment segment related to a fair value adjustment on certain contingent consideration arrangements.

For the three and nine months ended September 30, 2011, the Company recognized miscellaneous gains on operating assets of $1 million and $6 million, respectively.

Other

Other reflects legal and other professional fees related to the defense of securities litigation matters for former employees totaling $1 million and $3 million for the three and nine months ended September 30, 2012, respectively, and $2 million and $6 million for the three and nine months ended September 30, 2011, respectively.

Other also reflects external costs related to mergers, acquisitions or dispositions, which included income of $1 million and charges of $30 million for the three and nine months ended September 30, 2012, respectively, as compared to charges of $4 million and $12 million for the three and nine months ended September 30, 2011, respectively. The external costs related to mergers, acquisitions or dispositions for the three and nine months ended September 30, 2012 included a reversal of $5 million and charges of $21 million, respectively, related to the Imagine and TNT Turkey Shutdowns.

Amounts related to securities litigation and government investigations and 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, 2012, the Company recognized $5 million and $29 million, respectively, of net miscellaneous investment losses, including, for the nine months ended September 30, 2012, a $16 million loss on an investment in a network in Turkey recognized as part of the Imagine and TNT Turkey Shutdowns.

For the three and nine months ended September 30, 2011, the Company recognized $2 million of net miscellaneous investment gains and $1 million of net miscellaneous investment losses, respectively. Investment losses, net are included in Other loss, net in the accompanying Consolidated Statement of Operations.


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

Amounts Related to the Separation of Time Warner Cable Inc.

For both the three and nine months ended September 30, 2012, the Company recognized other income of $6 million, and for the three and nine months ended September 30, 2011, recognized other loss of $10 million and $5 million, respectively, related to the expiration, exercise and net change in the estimated fair value of Time Warner equity awards held by Time Warner Cable Inc. ("TWC") employees, which has been reflected in Other loss, net in the accompanying Consolidated Statement of Operations. For both the three and nine months ended September 30, 2011, the Company also recognized $5 million of other loss related to changes in the value of a TWC tax indemnification receivable, which has also been reflected in Other loss, net in the accompanying Consolidated Statement of Operations.

Amounts Related to the Disposition of the Warner Music Group

For the three and nine months ended September 30, 2012, the Company recognized $1 million of income and $5 million of losses, respectively, related to the disposition of the Warner Music Group ("WMG") in 2004, which for the nine months ended September 30, 2012 related primarily to a tax indemnification obligation. These amounts have been reflected in Other loss, net in the accompanying Consolidated Statement of Operations.

Income Tax Impact

The income tax impact reflects the estimated tax provision or tax benefit associated with each item affecting comparability. Such 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.

Consolidated Results

The following discussion provides an analysis of the Company's results of
operations and should be read in conjunction with the accompanying Consolidated
Statement of Operations.

Revenues. The components of Revenues are as follows (millions):



                                                                           Three Months Ended                                         Nine Months Ended

                                                             9/30/12               9/30/11            % Change          9/30/12               9/30/11            % Change
Subscription                                            $          2,501      $          2,376           5%        $          7,460      $          7,135           5%
Advertising                                                        1,360                 1,395          (3%)                  4,436                 4,452           -
Content                                                            2,801                 3,130         (11%)                  8,095                 8,709          (7%)
Other                                                                180                   167           8%                     574                   485          18%

Total revenues                                          $          6,842      $          7,068          (3%)       $         20,565      $         20,781          (1%)

The increase in Subscription revenues for the three and nine months ended September 30, 2012 was primarily related to an increase at the Networks segment. Advertising revenues decreased for the three months ended September 30, 2012, primarily related to decreases at both the Publishing and Networks segments. Advertising revenues for the nine months ended September 30, 2012 were essentially flat as an increase at the Networks segment was offset by a decrease at the Publishing segment. The decrease in Content revenues for the three and nine months ended September 30, 2012 was due primarily to a decrease at the Film and TV Entertainment segment. The increase in Other revenues for the three and nine months ended September 30, 2012 was primarily related to an increase at the Film and TV Entertainment segment.

Each of the revenue categories is discussed in greater detail by segment in "Business Segment Results."

Costs of Revenues. For the three months ended September 30, 2012 and 2011, Costs of revenues totaled $3.657 billion and $3.808 billion, respectively, and for the nine months ended September 30, 2012 and 2011, Costs of revenues totaled $11.498 billion and $11.579 billion, respectively. For the three and nine months ended September 30, 2012, Costs of revenues decreased reflecting declines at the Film and TV Entertainment and Publishing segments, partially offset by an increase at the Networks segment. The segment variations are discussed in "Business Segment Results."


Table of Contents

TIME WARNER INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS

OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - (Continued)

Selling, General and Administrative Expenses. For the three months ended September 30, 2012, Selling, general and administrative expenses decreased 3% to $1.511 billion from $1.563 billion for the three months ended September 30, 2011 primarily due to decreases at the Publishing and Networks segments, partially offset by an increase at the Film and TV Entertainment segment. For the nine months ended September 30, 2012, Selling, general and administrative expenses decreased 2% to $4.692 billion from $4.775 billion for the nine months ended September 30, 2011 primarily related to declines at the Publishing, Film and TV Entertainment and Networks segments. The segment variations are discussed in "Business Segment Results."

Included in Costs of revenues and Selling, general and administrative expenses is depreciation expense of $165 million and $480 million for the three and nine months ended September 30, 2012, respectively, and $160 million and $487 million for the three and nine months ended September 30, 2011, respectively.

Amortization Expense. Amortization expense decreased to $57 million for the three months ended September 30, 2012 from $68 million for the three months ended September 30, 2011 and decreased to $178 million for the nine months ended September 30, 2012 from $202 million for the nine months ended September 30, 2011.

Restructuring and Severance Costs. For the three and nine months ended September 30, 2012 and 2011, the Company incurred Restructuring and severance costs primarily related to employee terminations and other exit activities. Restructuring and severance costs by segment are as follows (millions):

                                                           Three Months Ended                            Nine Months Ended

                                                     9/30/12                 9/30/11               9/30/12                9/30/11

Networks                                        $             18        $             16      $             40        $            34
. . .
  Add TWX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for TWX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.