SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
February 2, 2000
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 1-12259 13-3527249
-------- ------- ----------
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
75 Rockefeller Plaza, New York, NY 10019
(Address of principal executive offices) (zip code)
(212) 484-8000
----------------------------------------------------
(Registrant's telephone number, including area code)
Not Applicable
-------------------------------------
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On February 2, 2000, Time Warner Inc. announced its results of operations
for the quarter and the year ended December 31, 1999. A copy of the press
release is attached hereto as Exhibit 99.1 and is incorporated herein by
reference.
Item 7.
(a) Not applicable.
(b) Not applicable.
(c) Exhibits.
99.1 Press Release dated February 2, 2000 of Time Warner Inc.
announcing results for the quarter and year ended
December 31, 1999.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
TIME WARNER INC.
By: /s/James W. Barge
----------------------
Name: James W. Barge
Title: Vice President & Controller
Date: February 10, 2000
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EXHIBIT INDEX
Exhibit
Number Description
------ -----------
99.1 Press release dated February 2, 2000 of Time Warner Inc.
announcing results for the quarter and year ended December
31, 1999.
For Immediate Release
TIME WARNER BUSINESSES REPORT RECORD 1999 AND
FOURTH-QUARTER RESULTS
-Normalized 1999 EBITA Grew 15%-
-1999 Normalized EPS Improves to $.39 Income vs. $.06 Loss-
-Cable Networks, Publishing, Warner Bros. and Cable Post
All-Time Record Yearly Results-
NEW YORK, February 2, 2000-Time Warner Inc. (Time Warner, NYSE: TWX) reported
record 1999 operating income before amortization of intangible assets (EBITA) of
$7.333 billion, up 64%, on revenues of $27.333 billion versus $4.462 billion of
EBITA on revenues of $26.244 billion in 1998. EBITA grew 15% for the year when
normalized principally for certain cable-related and filmed entertainment
transactions in 1999 and 1998 and digital media activities. Cable Networks,
Publishing, Warner Bros. and Cable all posted all-time records.
For the fourth quarter of 1999, Time Warner reported record EBITA of $2.454
billion, up 79%, on revenues of $7.988 billion. This compares to EBITA of $1.368
billion on revenues of $7.267 billion for the same period in 1998. Revenues grew
11% and EBITA grew 12% when normalized principally for certain cable-related and
filmed entertainment transactions in 1999 and 1998 and digital media activities.
In the quarter, Cable Networks, Publishing, and Cable all posted all-time
records. Below are EBITA results for the fourth quarter and full year (in
millions):
<TABLE>
Fourth Quarter Year
Historical Pro Forma (1) Historical Pro Forma (1)
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cable Networks $ 394 $ 316 $ 1,397 $ 1,160
Publishing 260 234 679 607
Music 173 205 452 493
Filmed Entertainment (2) 191 198 997 695
Broadcasting-The WB Network 3 (15) (92) (93)
Cable (2) 1,450 448 3,927 1,694
Intersegment Elimination - (18) (10) (94)
--- --- --- ---
EBITA Excluding Digital Media 2,471 1,368 7,350 4,462
Digital Media (17) - (17) -
--- --- --- ---
TOTAL EBITA $2,454 $1,368 $7,333 $4,462
====== ====== ====== ======
(1) To enhance comparability, prior period information has been provided on a
"pro forma" consolidated basis that retroactively reflects Time Warner's
consolidation of the Entertainment Group, which substantially consists of
TWE. Pro forma 1998 operating results, as presented in the table, do not
adjust for the effects of other significant transactions and nonrecurring
items discussed elsewhere herein.
(2) Filmed entertainment and cable operating results include certain
significant and nonrecurring net gains, as described more fully in the
discussion of divisional results included elsewhere herein.
</TABLE>
Commenting on the company's performance, Time Warner's Chairman and CEO
Gerald M. Levin said, "I am pleased with our record results and strong EBITA
growth rate of 15% for 1999, which met the top end of the range of our
aggressive targets for the year, and with the record performance of the Turner
Cable Networks, HBO, Time Inc., Warner Bros. and Time Warner Cable. In addition,
our overall company advertising revenue grew by 20% to over $5 billion in 1999.
Our strategic combination with AOL will accelerate the digital transformation of
Time Warner, creating the world's first Internet-age media and communications
company. Through our joint venture agreement with EMI, we will form the world's
premier music group, one that will define and drive the growth of the music
industry. Going forward, as we proceed with these transforming transactions, the
underlying strengths of Time Warner's operating performance will help provide a
dynamic base for the success of our new enterprise."
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For the full year, basic net income per common share, when normalized to exclude
the aggregate effect of certain significant nonrecurring items (1), was $.39 in
1999, compared to a net loss of $.06 per common share in 1998. On a reported
basis, Time Warner had basic income per common share before an extraordinary
item of $1.51 in 1999, and $1.50 after, compared to a net loss of $.31 per
common share in 1998.
For the fourth quarter, basic net income per common share, when normalized to
exclude the aggregate effect of the nonrecurring items (1), was $.20 in 1999,
compared to $.11 per common share in 1998. On a reported basis, Time Warner had
fourth-quarter basic net income per common share of $.65 in 1999, compared to a
net loss of $.17 per common share in 1998.
CABLE NETWORKS
Fourth-quarter EBITA for the Cable Networks division was an all-time record $394
million, up 25%, versus $316 million a year earlier. Full-year EBITA for Cable
Networks was an all-time record $1.397 billion, up 20%, versus $1.160 billion a
year earlier. The Turner Cable Networks' 23% EBITA growth for the year resulted
from double-digit increases in both subscription and advertising revenues. Total
revenues in 1999 for the Turner Cable Networks were up 19% from a year ago.
HBO's 16% EBITA growth for 1999 reflects increased subscription revenues for HBO
and Cinemax. Turner South, TBS's first regional entertainment network, launched
in the quarter with nearly one-million subscribers. In 1999, the Turner Cable
Networks delivered their largest annual audiences ever. TBS Superstation and TNT
aired all 10 of the top 10 theatrical film presentations on basic cable, and all
five of the top five original movies. HBO and Cinemax subscriptions grew 1.1
million to 35.7 million at year end. In January 2000, HBO won eight Golden Globe
Awards, the most of any television network, including four awards for the hit
series The Sopranos, two for Sex and the City, and one each for Introducing
Dorothy Dandridge and RKO 281.
PUBLISHING
Fourth-quarter EBITA for Time Inc., the company's publishing division, was an
all-time record $260 million, up 11%, compared to $234 million for the
year-earlier period. The fourth quarter was Time Inc.'s 25th straight quarter of
EBITA growth. For 1999, EBITA was up 12%, to an all-time record $679 million
from $607 million in 1998. Contributing to the year's results were strong 16%
advertising revenue improvements. Across-the-board advertising gains were led by
In Style, People, Fortune and Time. These gains were somewhat offset by lower
direct marketing results. Circulation growth continued, with Teen People raising
its rate base to 1.5 million and In Style increasing its to 1.3 million. At year
end, Time Inc. magazines reached a gross audience of approximately 200 million.
During the quarter, Time Inc.'s Book-of-the-Month Club and Bertelsmann A.G.'s
Doubleday Direct announced an agreement in principle to form a new partnership
that will offer a far greater choice of book titles to their combined club
members.
MUSIC
Warner Music Group posted fourth-quarter EBITA of $173 million, compared to $205
million in the fourth quarter of 1998. For 1999, EBITA was $452 million, down
8%, compared to $493 million a year ago. The year's results reflect declines in
both domestic and international revenue and lower results from its 50%-owned
Columbia House partnership. Top worldwide sellers for the year include Cher, Red
Hot Chili Peppers, Kid Rock, Eric Clapton, The Corrs, Madonna, Tim McGraw, Luis
Miguel, Sugar Ray, the Pokemon soundtrack, Faith Hill, Phil Collins, Metallica,
Goo Goo Dolls, Austin Powers: The Spy Who Shagged Me Vol. 1 soundtrack, Leann
Rimes and Mana. Warner Music artists earned 73 Grammy nominations in January, in
such key categories as Record of the Year, Best New Artist, Best Pop Album, Best
Rock Album, Best Rap Album and Best Country Album. In January, Time Warner and
EMI Group plc announced an agreement to form the world's premier music group by
combining their recorded music and music publishing businesses into a global
joint venture, which will be consolidated by Time Warner.
(1) The comparability of Time Warner's income (loss) per common share on a
quarterly and annual basis is affected by certain significant and nonrecurring
items recognized in each period. For the quarter, these items include a gain in
1999 from the sale of an interest in CanalSatellite, a non-cash charge in 1999
in connection with Warner Bros.' retail stores, net gains in 1999 and 1998
relating to the sale or exchange of cable television systems and investments, a
charge in 1998 to reduce the carrying value of an interest in Primestar and the
effect of a one-time increase in preferred dividend requirements in 1998
relating to the redemption of Time Warner's Series M preferred stock. In
addition to those items, significant and nonrecurring items for the year include
a gain in 1999 from the early termination of a long-term video distribution
agreement, a gain in 1999 relating to the initial public offering of a 20%
interest in Time Warner Telecom and an extraordinary loss in 1999 on the
retirement of debt.
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FILMED ENTERTAINMENT
Fourth-quarter EBITA for Filmed Entertainment was $191 million, versus $198
million for the comparable 1998 period. Full-year EBITA was an all-time record
$997 million, versus $695 million for the year-earlier period. On a normalized
basis, EBITA grew 14% for the year. The 1999 reported results include net pretax
gains of approximately $215 million recognized in the first quarter in
connection with the early termination and settlement of a long-term video
distribution agreement and $97 million recognized in the fourth quarter in
connection with the sale of an interest in CanalSatellite, a satellite
television platform servicing France and Monaco, offset in part by a one-time,
fourth-quarter non-cash charge of $106 million relating to Warner Bros.' retail
stores. EBITA for 1999 benefited from increases in revenue from Warner Bros.'
worldwide theatrical and home video businesses, as well as improvements from
TBS's film library operations, partially offset by lower results from Warner
Bros.' consumer products operations. In 1999, Warner Bros. achieved $1 billion
at the domestic box office for the first time and also exceeded $1 billion at
the international box office. Theatrical revenues for 1999 benefited from the
box-office success of Warner Bros.' The Matrix, which earned more than $450
million worldwide and became Warner Bros.' highest-grossing film ever.
Theatrical revenues in 1999 also benefited from the domestic box-office success
of Warner Bros.' The Green Mile ($116 million to date) and Any Given Sunday ($73
million to date) and New Line's Austin Powers: The Spy Who Shagged Me ($205
million to date).
BROADCASTING-THE WB NETWORK
The WB Television Network posted EBITA of $3 million in the quarter, compared to
a loss of $15 million a year ago. The quarterly profit was the first ever for
the network. For 1999, the loss was $92 million, compared to a loss of $93
million for 1998. The 1999 results reflect improved broadcasting revenues,
offset by higher programming costs associated with an expanded programming
schedule and increased start-up costs for The WB Network 100+ Station Group. In
1999, The WB successfully added new ratings winners such as Popular and Angel to
established hits such as Buffy the Vampire Slayer, Dawson's Creek, Charmed,
Felicity and 7th Heaven. Kids' WB!, anchored by Pokemon, has become the leading
broadcast and cable children's network on Saturday mornings.
CABLE
In the fourth quarter, Time Warner Cable posted all-time record EBITA of $1.450
billion, up from $448 million a year ago. For 1999, EBITA was an all-time record
$3.927 billion versus $1.694 billion in 1998. On a normalized basis, EBITA grew
11% for the year. The reported results include net pretax gains for the fourth
quarter of $999 million in 1999 and $18 million in 1998 relating to the sale or
exchange of cable television systems and investments. For the full year, net
pretax gains amounted to $2.247 billion in 1999 and $108 million in 1998. The
cable division's continuing solid double-digit growth reflects an increase in
basic cable, pay-per-view and Road Runner revenues and in advertising revenues,
which grew 26% in 1999. At the end of the fourth quarter, Time Warner Cable had
an internal subscriber growth rate of 1.9%, served approximately 12.6 million
subscribers, and passed 20.6 million homes, which is over 20% of total U.S.
television households. At the end of the quarter, Time Warner Cable was offering
digital video services to 430,000 subscribers. Road Runner, Time Warner Cable's
jointly-owned high-speed online service, had approximately 550,000 subscribers
at year end, having added 130,000 new subscribers in the quarter.
DIGITAL MEDIA
Time Warner Digital Media posted a loss of $17 million during the quarter,
reflecting start-up activities associated with the company's digital media
businesses, including Entertaindom (www.entertaindom.com), the company's
entertainment Web destination launched in November.
Time Warner Inc. (NYSE: TWX, www.timewarner.com) is the world's leading media
company. Its businesses include cable networks, publishing, music, filmed
entertainment, cable and digital media.
####
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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 and are naturally subject to
uncertainty and changes in circumstances. Actual results may vary materially
from the expectations contained herein. The forward-looking statements in this
document include statements about future financial and operating results, the
proposed Time Warner/America Online transaction and Time Warner's proposed joint
venture with EMI Group. The following factors, among others, could cause actual
results to differ materially from those described herein: inability to obtain,
or meet conditions imposed for, governmental approvals for the merger with
America Online and/or the joint venture with EMI Group; failure of the Time
Warner or America Online stockholders to approve the merger and/or the
shareholders of EMI Group to approve the joint venture; the risk that the Time
Warner and America Online businesses will not be integrated successfully; the
costs related to the merger; the inability of Warner Music Group and EMI Group
to realize synergies or other anticipated benefits of the joint venture; and
other economic, business, competitive and/or regulatory factors affecting Time
Warner's business generally. More detailed information about those factors is
set forth in Time Warner's filings with the Securities and Exchange Commission,
including its most recent quarterly report on Form 10-Q and its Current Reports
on Form 8-K dated January 10, 2000 and January 23, 2000 relating to these
transactions. 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.
* * * * * * * * * * * * * * * * * * * * * *
Investors and security holders are urged to read the joint proxy
statement/prospectus regarding the business combination transaction referenced
in the foregoing information, when it becomes available, because it will contain
important information. The joint proxy statement/prospectus will be filed with
the Securities and Exchange Commission by Time Warner Inc. and AOL Time Warner
Inc. Investors and security holders may obtain a free copy of the joint proxy
statement/prospectus (when it is available) and other documents filed by Time
Warner Inc. and AOL Time Warner Inc. with the Commission at the Commission's web
site at www.sec.gov. The joint proxy statement/prospectus and these other
documents may also be obtained for free from Time Warner Inc. by directing a
request to Time Warner Inc., 75 Rockefeller Plaza, New York, New York 10019,
Attention: Shareholder Relations, telephone: (212) 484-6971, e-mail:
[email protected].
To receive a copy of this press release through the Internet, access Time
Warner's corporate website located at http://www.timewarner.com
Attachments:
(1) Consolidated Statement of Operations
(2) Notes to Statement of Operations
Contact:
Edward Adler
(212) 484-6630
4
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TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
BY BUSINESS SEGMENT
(In millions, except per share amounts)
(Unaudited)
<TABLE>
Three Months Ended Years Ended
December 31, December 31,
------------ ------------
1999 1998 1998 1999 1998 1998
Historical Pro Forma Historical Historical Pro Forma Historical
---------- --------- ---------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Cable Networks $1,686 $1,392 $ 866 $ 6,111 $5,377 $3,325
Publishing 1,426 1,336 1,336 4,663 4,496 4,496
Music 1,218 1,294 1,294 3,834 4,025 4,025
Filmed Entertainment 2,387 2,188 498 8,075 7,978 1,917
Broadcasting - The WB Network 138 90 - 384 260 -
Cable 1,406 1,327 238 5,374 5,342 964
Digital Media 1 - - 1 - -
Intersegment elimination (274) (360) (37) (1,109) (1,234) (145)
---- ---- --- ------ ------ ----
Total revenues $7,988 $7,267 $4,195 $27,333 $26,244 $14,582
====== ====== ====== ======= ======= =======
Business segment operating income before
amortization of intangible assets:
Cable Networks 394 316 201 1,397 1,160 706
Publishing 260 234 234 679 607 607
Music 173 205 205 452 493 493
Filmed Entertainment 191 198 98 997 695 192
Broadcasting - The WB Network 3 (15) - (92) (93) -
Cable 1,450 448 96 3,927 1,694 325
Digital Media (17) - - (17) - -
Intersegment elimination - (18) (6) (10) (94) (27)
--- --- --- --- --- ---
2,454 1,368 828 7,333 4,462 2,296
Amortization of intangible assets (350) (329) (201) (1,298) (1,330) (800)
---- ---- ---- ------ ------ ----
Business segment operating income 2,104 1,039 627 6,035 3,132 1,496
Equity in pretax income of Entertainment
Group, substantially all TWE - - (81) - - 356
Interest and other, net (567) (712) (303) (1,954) (2,122) (1,180)
Minority interest (60) (66) - (418) (266) -
Corporate expenses (43) (46) (28) (163) (158) (86)
--- --- --- ---- ---- ---
Income before income taxes 1,434 215 215 3,500 586 586
Income tax provision (586) (125) (125) (1,540) (418) (418)
---- ---- ---- ------ ---- ----
Income before extraordinary item 848 90 90 1,960 168 168
Extraordinary loss on retirement of
debt, net of $9 million income tax - - - (12) - -
benefit in 1999 --- --- --- --- --- ---
Net income 848 90 90 1,948 168 168
Preferred dividend requirements (7) (304) (304) (52) (540) (540)
--- ---- ---- --- ---- ----
Net income (loss) applicable to
common shares $ 841 $ (214) $(214) $ 1,896 $ (372) $ (372)
====== ======= ===== ======= ====== ======
Income (loss) per common share
before extraordinary item:
Basic $ .65 $ (.17) $ (.17) $ 1.51 $ (.31) $ (.31)
===== ====== ====== ====== ====== ======
Diluted $ .62 $ (.17) $ (.17) $ 1.43 $ (.31) $ (.31)
===== ====== ====== ====== ====== ======
Net income (loss) per common share:
Basic $ .65 $ (.17) $ (.17) $ 1.50 $ (.31) $ (.31)
===== ====== ====== ====== ====== ======
Diluted $ .62 $ (.17) $ (.17) $ 1.42 $ (.31) $ (.31)
===== ====== ====== ====== ====== ======
Average common shares:
Basic 1,286.5 1,227.2 1,227.2 1,267.0 1,194.7 1,194.7
======= ======= ======= ======= ======= =======
Diluted 1,391.8 1,227.2 1,227.2 1,398.3 1,194.7 1,194.7
======= ======= ======= ======= ======= =======
</TABLE>
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TIME WARNER INC.
NOTES TO STATEMENT OF OPERATIONS
Note 1: Basis of Presentation
Time Warner classifies its business interests into six fundamental areas: Cable
Networks, consisting principally of interests in cable television programming;
Publishing, consisting principally of interests in magazine publishing, book
publishing and direct marketing; Music, consisting principally of interests in
recorded music and music publishing; Filmed Entertainment, consisting
principally of interests in filmed entertainment, television production and
television broadcasting; Cable, consisting principally of interests in cable
television systems; and Digital Media, consisting principally of interests in
Internet-related and digital media businesses.
A majority of Time Warner's interests in filmed entertainment, television
production, television broadcasting and cable television systems, and a portion
of its interests in cable television programming are held through Time Warner
Entertainment Company, L.P. ("TWE"). Since 1993, Time Warner has not been
consolidating TWE and certain related companies (the "Entertainment Group") for
financial reporting purposes because a subsidiary of MediaOne Group, Inc.
("MediaOne"), which is a limited partner of TWE, had rights that allowed it to
participate in the management of TWE's businesses. However, in August 1999,
MediaOne's management rights over TWE were terminated. As a result, Time
Warner's 1999 operating results reflect the consolidation of the Entertainment
Group, which substantially consists of TWE, retroactive to the beginning of
1999. Time Warner's historical operating results for 1998 have not been changed;
however, in order to enhance comparability, pro forma operating results for 1998
retroactively reflecting the consolidation of TWE are presented supplementally.
Note 2: Cable-Related Transactions
Gains on the Sale or Exchange of Cable Television Systems and Investments
In 1999 and 1998, largely in an effort to enhance their geographic clustering of
cable television properties, Time Warner and TWE sold or exchanged various cable
television systems and investments. As a result of these transactions, the
operating results of Time Warner's Cable division include net pretax gains for
the fourth quarter of $999 million in 1999 and $18 million in 1998 on a pro
forma basis. Net pretax gains for the year amounted to $2.247 billion in 1999
and $108 million in 1998 on a pro forma basis. On a historical basis for 1998,
all $18 million of the net pretax gains recognized in the fourth quarter of 1998
are included in the operating results of Time Warner's Cable division and the
remaining $90 million of gains recognized during the year are included in Time
Warner's equity in the pretax income of the Entertainment Group.
1999 Gain on Time Warner Telecom's Initial Public Offering
In May 1999, Time Warner Telecom, a competitive local exchange carrier that
provides telephony services to businesses, completed an initial public offering
of 20% of its common stock (the "Time Warner Telecom IPO"). Time Warner Telecom
raised net proceeds of approximately $270 million. Approximately $180 million of
these proceeds were used to pay obligations owed to Time Warner and TWE. In
turn, Time Warner and TWE used those proceeds principally to reduce bank debt.
In connection with the Time Warner Telecom IPO and certain related transactions,
Time Warner's ownership interest in Time Warner Telecom was diluted from 61.98%
to 48.21%. As a result, Time Warner recognized a pretax gain of approximately
$115 million. This gain has been included in interest and other, net, in Time
Warner's 1999 consolidated statement of operations.
1998 Primestar Write-Down
In the fourth quarter of 1998, TWE recorded a charge of approximately $210
million principally to reduce the carrying value of its 24% interest in
Primestar, Inc. ("Primestar"), a direct broadcast satellite company. This charge
reflected a significant decline in the fair value of Primestar during that
quarter. The decline in Primestar's value was confirmed by the sale of its
assets and operations to DirecTV, a competing direct broadcast satellite
business owned by Hughes Electronics Corp., which occurred during the first half
of 1999. This charge has been included in interest and other, net, in Time
Warner's 1998 pro forma consolidated statement of operations and, on a
historical basis for 1998, in Time Warner's equity in the pretax income of the
Entertainment Group.
6
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1998 Cable Transactions
A number of significant transactions occurred in 1998 that further affected
the comparability of the Cable division's results. These transactions consist
of (i) the transfer of Time Warner Cable's direct broadcast satellite
operations to Primestar, effective as of April 1, 1998, (ii) the formation of
the Road Runner joint venture to operate and expand Time Warner Cable's
and MediaOne's existing high-speed online businesses, effective as of
June 30, 1998, (iii) the reorganization of Time Warner Cable's business
telephony operations into a separate entity now named Time Warner Telecom Inc.,
effective as of July 1, 1998 and (iv) the formation of a joint venture in
Texas that owns cable television systems serving approximately 1.1
million subscribers, effective as of December 31, 1998. These transactions
are all more fully described in Time Warner's consolidated financial
statements included in its Annual Report on Form 10-K for the year ended
December 31, 1998, as amended.
Note 3: Filmed Entertainment Transactions
1999 Gain on Termination of MGM Video Distribution Agreement
In March 1999, Warner Bros. and Metro-Goldwyn-Mayer, Inc. ("MGM")
terminated a long-term distribution agreement under which Warner Bros. had
exclusive worldwide distribution rights for MGM/United Artists home video
product. In connection with the early termination and settlement of this
distribution agreement, Warner Bros. recognized a net pretax gain of
approximately $215 million, which has been included in the 1999 operating
results of Time Warner's Filmed Entertainment division.
1999 Gain on Sale of CanalSatellite
In December 1999, Warner Bros. sold its 10% interest in CanalSatellite, a
satellite television distribution service in France and Monaco, to Canal Plus, a
large French media entertainment company. In connection with the sale, Warner
Bros. recognized a pretax gain of $97 million, which has been included in the
1999 operating results of Time Warner's Filmed Entertainment division.
1999 Warner Bros. Retail Stores Write-Down
In the fourth quarter of 1999, Warner Bros. recorded a noncash, pretax
charge of $106 million to reduce the carrying value of certain fixed assets and
leasehold improvements used in its retail stores. The charge represents the
excess of the carrying value of the assets used in Warner Bros.' retail stores
over the discounted future cash flows from such operations, based on a plan
adopted in December 1999 that is designed to improve the performance of its
stores. The charge has been included in the 1999 operating results of Time
Warner's Filmed Entertainment division.
Note 4: 1998 Redemption of Series M Exchangeable Preferred Stock
In December 1998, Time Warner redeemed all of its outstanding shares of
10 1/4% Series M exchangeable preferred stock at an aggregate cost of
approximately $2.1 billion. The redemption was funded with proceeds
from the issuance of lower-cost debt. As a result of this redemption, preferred
dividend requirements in Time Warner's 1998 consolidated statement of
operations include a one-time effect of $234 million relating to the premium
paid in connection with such redemption.
Note 5: Income Taxes
The relationship between income before income taxes and income tax expense
of Time Warner is affected by the amortization of goodwill and certain other
financial statement expenses that are not deductible for income tax purposes.
Historical income tax expense of Time Warner for 1998 includes all income taxes
related to its allocable share of partnership income and its equity in the
income tax expense of corporate subsidiaries of the Entertainment Group.
Note 6: Income (Loss) per Common Share
Basic income (loss) per common share is based upon the net income (loss)
applicable to common shares after preferred dividend requirements and upon the
weighted average of common shares outstanding during the period. Diluted income
(loss) per common share adjusts for the effect of convertible securities, stock
options and other potentially dilutive financial instruments only in the periods
in which such effect would have been dilutive.
7
<PAGE>
Note 7: Comparability of Income (Loss) per Common Share
As described more fully above, income (loss) per common share has been
affected by certain significant, nonrecurring items recognized in 1999 and 1998.
Those items consist of net gains relating to (i) the sale or exchange of various
cable television systems and investments in both periods, (ii) the 1999 gain on
the Time Warner Telecom IPO, (iii) the 1998 Primestar write-down, (iv) the net
gains relating to the 1999 Filmed Entertainment transactions, (v) the 1998
redemption of the Series M exchangeable preferred stock and (vi) an
extraordinary loss in 1999 relating to the retirement of debt. The aggregate net
effect of these items was to increase (decrease) basic net income per common
share for the fourth quarter by $.45 in 1999 and $(.28) in 1998. For the year,
the aggregate net effect was to increase (decrease) basic net income per common
share by $1.11 in 1999 and $(.25) in 1998. On a diluted basis, the aggregate net
effect for the fourth quarter was an increase (decrease) in net income per
common share of $.42 in 1999 and $(.28) in 1998. For the year, on a diluted
basis, the aggregate net effect was an increase (decrease) in net income per
common share of $1.03 in 1999 and $(.25) in 1998.
8
