(Source: Business Wire)
Time Warner Inc. (NYSE:TWX) today reported financial results for its second quarter ended June 30, 2009.
Chairman and Chief Executive Officer Jeff Bewkes said: "I'm encouraged by our operating results for this quarter and the first half of the year. Despitethe difficult economy, our Content Group delivered 4% year-over-year Adjusted OIBDA growth in the quarter. We've also reaffirmed our business outlook for the full year. Our performance reflects the diversity of our revenue streams, the appeal of our content and our continued focus on efficiency. In addition to our regular dividend, we restarted our stock buyback this quarter -- underscoring our commitment to provide direct returns to stockholders."
Mr. Bewkes continued: "At the same time, we're continuing the reshaping of Time Warner that we started last year. We're on track to spin off AOL to our stockholders around the end of the year. Separating AOL will benefit both companies -- enabling Time Warner to concentrate fully on our core content businesses and improving AOL's operational and strategic flexibility."
Company Results(1)
In the quarter, Revenues declined 9% from the same period in 2008 to $6.8 billion. Lower revenues at the Publishing, AOL and Filmed Entertainment segments more than offset growth at the Networks segment.
Adjusted Operating Income before Depreciation and Amortization ("Adjusted OIBDA") decreased 2% to $1.6 billion, as declines at the Publishing and AOL segments more than offset growth at the Networks and Filmed Entertainment segments. Operating Income was down 2% to $1.2 billion.
For the Content Group (which consists of the Networks, Filmed Entertainment, Publishing and Corporate segments), Revenues decreased 6%, while Adjusted OIBDA and Operating Income both rose 4%.
For the first six months of 2009, Cash Provided by Operations from Continuing Operations was $2.1 billion, and Free Cash Flow totaled $1.8 billion (reflecting a 59% conversion rate of Adjusted OIBDA). As of June 30, 2009, Net Debt was $10.5 billion, down $10.2 billion from $20.7 billion at the end of 2008, due mainly to the $9.3 billion special cash dividend received from Time Warner Cable Inc. on March 12, 2009, in connection with its separation from the Company, as well as the generation of Free Cash Flow.
Adjusted Diluted Income per Common Share from Continuing Operations ("Adjusted EPS") was $0.45 for the three months ended June 30, 2009, compared to $0.47 in last year's second quarter. Diluted Income per Common Share from Continuing Operations was $0.43 for the three months ended June 30, 2009, compared to $0.47 in last year's second quarter.(2)
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(1) On March 12, 2009, the Company completed the separation of Time Warner Cable Inc. Accordingly, the Company has presented the financial condition and results of operations of the Cable segment as discontinued operations for all periods presented.
(2) All common share and per common share amounts in the current and prior periods reflect the Company's 1-for-3 reverse stock split on March 27, 2009.
Segment Performance
Presentation of Financial Information
The schedule below reflects Time Warner's financial performance for the three and six months ended June 30, by line of business (millions).
In the presentation of financial information in this release, Adjusted OIBDA excludes the impact of noncash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales and amounts related to securities litigation and government investigations. Operating Income (Loss) includes these amounts in their respective periods. Refer to the reconciliations of Adjusted OIBDA to Operating Income (Loss) before Depreciation and Amortization ("OIBDA") and the reconciliations of OIBDA to Operating Income (Loss) in this release for details.
ThreeMonths Ended June30, SixMonths Ended June30, 2009 2008 2009 2008 Revenues: (recast)(a) (recast)(a) Networks $ 2,963 $ 2,826 $ 5,771 $ 5,485 Filmed Entertainment 2,333 2,564 4,966 5,404 Publishing 915 1,176 1,721 2,221 Intersegment eliminations (198 ) (143 ) (359 ) (332 ) Total Content Group Revenues 6,013 6,423 12,099 12,778 AOL 804 1,057 1,671 2,185 Intersegment eliminations (8 ) (11 ) (16 ) (24 ) Total Revenues $ 6,809 $ 7,469 $ 13,754 $ 14,939 Adjusted OIBDA(b): Networks $ 981 $ 860 $ 2,045 $ 1,818 Filmed Entertainment 263 196 571 476 Publishing 144 269 156 414 Corporate (71 ) (77 ) (148 ) (176 ) Intersegment eliminations (14 ) 7 (14 ) (2 ) Total Content Group Adjusted OIBDA 1,303 1,255 2,610 2,530 AOL 271 350 526 755 Total Adjusted OIBDA $ 1,574 $ 1,605 $ 3,136 $ 3,285 Operating Income (Loss)(b): Networks $ 875 $ 749 $ 1,835 $ 1,623 Filmed Entertainment 143 94 357 277 Publishing 102 218 70 311 Corporate (88 ) (91 ) (182 ) (205 ) Intersegment eliminations (14 ) 7 (14 ) (2 ) Total Content Group Operating Income (Loss) 1,018 977 2,066 2,004 AOL 165 230 315 514 Total Operating Income (Loss) $ 1,183 $ 1,207 $ 2,381 $ 2,518 (a) The 2008 financial information has been recast so that the basis of presentation is consistent with that of the 2009 financial information. Refer to Note 1, "Description of Business and Basis of Presentation." (b) Adjusted OIBDA and Operating Income (Loss) for the three and six months ended June 30, 2009 and 2008, respectively, included restructuring costs of (millions): ThreeMonths Ended June30, SixMonths Ended June30, 2009 2008 2009 2008 (recast)(a) (recast)(a) Networks $ -- $ -- $ -- $ -- Filmed Entertainment (31 ) 3 (68 ) (113 ) Publishing 4 (5 ) 5 (15 ) AOL (15 ) (4 ) (73 ) (13 ) Corporate -- -- -- (7 ) Total Restructuring Costs $ (42 ) $ (6 ) $ (136 ) $ (148 ) -------------------------------------------------------------------------------
Presented below is a discussion of Time Warner's segments for the second quarter of 2009. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.
NETWORKS (Turner Broadcasting & HBO)
Revenues rose 5% ($137 million) to $3.0 billion, with 8% growth ($144 million) in Subscription revenues, offset partially by a 3% decrease ($30 million) in Advertising revenues. Subscription revenues benefited primarily from higher rates at Turner and HBO, as well as the impact of the consolidation of HBO Latin America Group ("HBO LAG"), partially offset by the unfavorable impact of foreign exchange rates. Advertising revenues declined as a result of weakened demand mainly at Turner's international networks and the unfavorable impact of foreign exchange rates.
Adjusted OIBDA increased 14% ($121 million) to $981 million, driven by revenue growth and the consolidation of HBO LAG, as well as lower newsgathering costs. Programming costs increased 4% due to the impact of the consolidation of HBO LAG and higher original programming expenses at Turner, partly offset by lower expenses related to sports programming, primarily NBA programming.
Operating Income grew 17% ($126 million) to $875 million, due mostly to higher Adjusted OIBDA.
FILMED ENTERTAINMENT
Revenues declined 9% ($231 million) to $2.3 billion, as a stronger theatrical release slate, driven by The Hangover, was more than offset by lower DVD sales due to reduced quantity and performance of new home video releases, lower catalog shipments and lower television license fees from theatrical product. Also contributing to the decline was a difficult comparison to the LEGO: Indiana Jones video game release in the prior year quarter and the unfavorable impact of foreign exchange rates.
Adjusted OIBDA climbed 34% ($67 million) to $263 million, as reduced print and advertising expenses related primarily to the timing, quantity and mix of titles, lower overhead costs and the effect of improved home video catalog returns more than offset the decline in revenues and higher net restructuring charges of $34 million.
Operating Income rose 52% ($49 million) to $143 million, due mainly to the increase in Adjusted OIBDA as well as lower amortization expenses ($13 million). The current year quarter also included a $33 million loss on the sale of Warner Bros.' Italian cinema assets.
PUBLISHING
Revenues decreased 22% ($261 million) to $915 million, due to declines of 26% ($166 million) in Advertising revenues, 18% ($68 million) in Subscription revenues, and 21% ($27 million) in Other revenues. Driving the decline in Advertising revenues were lower print magazine revenues, including the unfavorable impact of foreign exchange rates at IPC. Subscription revenues decreased due to the unfavorable impact of foreign exchange rates at IPC and lower magazine newsstand and subscription sales. Other revenues were lower, resulting primarily from decreases at Synapse and Southern Living At Home, partly offset by the impact of the acquisition of QSP, Inc.
OIBDA declined 46% ($125 million) to $144 million, due mainly to the decrease in revenues and higher pension expense, offset in part by lower overhead costs, including cost savings related to the reorganization in the fourth quarter of 2008.
Operating Income decreased 53% ($116 million) to $102 million, resulting primarily from the decline in OIBDA.
AOL
Revenues decreased 24% ($253 million) to $804 million, as a result of a 27% decline ($135 million) in Subscription revenues due to continued subscriber losses and 21% ($111 million) lower Advertising revenues. The decrease in Advertising revenues was attributable to lower display advertising and paid-search advertising on AOL Media, as well as decreased sales of advertising on third-party Internet sites.
OIBDA declined 23% ($79 million) to $271 million, due primarily to lower revenues, offset in part by lower traffic acquisition costs ($49 million), as well as reduced network, marketing and other expenses. The current and prior year quarters also included net restructuring charges of $15 million and $4 million, respectively.
Operating Income decreased 28% ($65 million) to $165 million, due to the decline in OIBDA, slightly offset by lower depreciation ($8 million) and amortization ($6 million) expenses.
Key Operating Metrics
During the quarter, AOL had 107 million average monthly domestic unique visitors and 51 billion domestic page views, according to comScore Media Metrix, which translates into 159 average monthly domestic page views per unique visitor.
As of June 30, 2009, the AOL service had 5.8 million U.S. access subscribers, a decline of 510,000 from the prior quarter and 2.3 million from the year-ago quarter.
CONSOLIDATED REPORTED NET INCOME AND PER SHARE RESULTS
For the three months ended June 30, 2009, the Company reported Net Income of $519 million, or $0.43 per diluted common share. This compares to Net Income in the prior year quarter of $792 million, or $0.66 per diluted common share.
Adjusted EPS was $0.45 for the three months ended June 30, 2009, compared to $0.47 in the second quarter of last year. The decline in Adjusted EPS was due to lower Adjusted OIBDA and the impact of an increase in the effective tax rate, offset in part by lower interest expense and lower amortization and depreciation expenses.
For the three months ended June 30, 2009, the Company reported Income from Continuing Operations of $519 million, or $0.43 per diluted common share, compared to Income from Continuing Operations of $564 million, or $0.47 per diluted common share, in the second quarter of 2008.
Refer to the reconciliation of Adjusted EPS to Diluted Income per Common Share from Continuing Operations in this release for details.
Discontinued operations included the operating results of Time Warner Cable Inc. for all periods presented.
