Time Warner Inc. Reports Second Quarter 2004 Results.NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- For Immediate Release: The presentation of Time Warner Inc.'s historical financial performance reflects certain reclassifications made to the prior-year's financial information to conform to Verb 1. conform to - satisfy a condition or restriction; "Does this paper meet the requirements for the degree?" fit, meet coordinate - be co-ordinated; "These activities coordinate well" the current year's presentation. This includes a change in how the Company classifies the accretion The act of adding portions of soil to the soil already in possession of the owner by gradual deposition through the operation of natural causes. The growth of the value of a particular item given to a person as a specific bequest under the provisions of a will between the of discounts on long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. film licensing arrangements. This income statement reclassification Reclassification The process of changing the class of mutual funds once certain requirements have been met. These requirements are generally placed on load mutual funds. Reclassification is not considered to be a taxable event. did not affect Net Income, Cash Provided by Operations and Free Cash Flow. (For further detail, refer to the attached notes.) Time Warner Inc. (NYSE NYSE See: New York Stock Exchange :TWX (TeletypeWriter eXchange Service) A U.S. and Canadian dial-up communications service that became part of Telex. In 1971, the Bell System sold TWX to Western Union. TWX transmitted 5-bit Murray code or 7-bit ASCII code at up to 150 bps. See Telex. ) today reported financial results for its second quarter ended June June: see month. 30, 2004. In making the announcement, Chairman and Chief Executive Officer Dick Parsons Parsons, city (1990 pop. 11,924), Labette co., SE Kans.; inc. 1871. It is a shipping point for dairy products, grain, and livestock. Manufactures include ammunition, wire and paper products, plastics, and appliances. said: "Time Warner once again delivered a very strong quarter, with a robust 10% revenue increase and an even better 17% increase in Adjusted Operating Income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. before Depreciation and Amortization. We continue to find innovative ways to create value and drive sustainable growth, while making the disciplined investments necessary to position us for future success. The foundation of our strategy continues to be running our businesses better than ever, with a focus on maintaining or extending their competitiveness. That's why we're we're Contraction of we are. we're we are particularly pleased that all of our business segments contributed to the Company's growth for the second consecutive quarter. This strong year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. performance across the board reinforces our confidence that we'll we'll Contraction of we will. we'll we will or we shall we'll will ~shall achieve our 2004 financial objectives." Revenues for the quarter climbed 10% over the same period in 2003 to $10.9 billion, led by double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. percentage increases at the Filmed Entertainment, Networks and Cable segments. Operating Income before Depreciation and Amortization rose 30% to $2.6 billion in the quarter. Adjusted Operating Income before Depreciation and Amortization grew 17%. This excludes the impact of asset impairments and gains and losses on asset sales, as more fully discussed in the accompanying ac·com·pa·ny v. ac·com·pa·nied, ac·com·pa·ny·ing, ac·com·pa·nies v.tr. 1. To be or go with as a companion. 2. Performance of Segments section. Driving this increase was solid growth at all of the Company's segments. Operating Income climbed 47% to $1.8 billion (24% excluding the aforementioned a·fore·men·tioned adj. Mentioned previously. n. The one or ones mentioned previously. aforementioned Adjective mentioned before Adj. 1. impairments and gain). For the first six months of 2004, the Company generated $3.3 billion in Cash Provided by Operations and $1.7 billion of Free Cash Flow from Continuing Operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the (a 35% conversion rate of Operating Income before Depreciation and Amortization). As of June 30, 2004, net debt totaled $18.1 billion, down from $22.7 billion at the end of 2003. For the three months ended June 30, 2004, Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Income per Common Share before Discontinued Operations Discontinued operations Divisions of a business that have been sold or written off and that no longer are maintained by the business. was $0.19 compared to $0.23 in last year's second quarter. The prior-year amount included certain items affecting comparability that are described in detail in the accompanying Consolidated con·sol·i·date v. con·sol·i·dat·ed, con·sol·i·dat·ing, con·sol·i·dates v.tr. 1. To unite into one system or whole; combine: Reported Net Income and Per Share Results section. The net impact of such items was to increase the prior-year results by $0.12 per diluted common share. Performance of Segments The schedules below reflect Time Warner's performance for the three months and six months ended June 30 by line of business (in millions):
Three Months and Six Months Ended June 30:
Three Months Six Months
Ended June 30, Ended June 30,
Revenues: 2004 2003 2004 2003
-------- ------- -------- --------
AOL $ 2,177 $2,132 $ 4,368 $ 4,329
Cable 2,116 1,923 4,159 3,765
Filmed Entertainment 3,091 2,757 6,078 5,121
Networks 2,378 2,155 4,573 4,247
Publishing 1,471 1,421 2,559 2,573
Intersegment Eliminations (345) (466) (723) (877)
-------- ------- -------- --------
Total Revenues $10,888 $9,922 $21,014 $19,158
-------------- ======== ======= ======== ========
Operating Income before
Depreciation and Amortization:
AOL(a) $ 487 $ 431 $ 976 $ 835
Cable 817 752 1,567 1,443
Filmed Entertainment (b) 417 382 829 601
Networks (c) 661 359 1,396 859
Publishing (d) 357 230 527 378
Corporate (e) (112) (112) (276) (213)
Intersegment Eliminations 10 (7) 23 (2)
-------- ------- -------- --------
Total Operating Income Before
-----------------------------
Depreciation and Amortization $ 2,637 $2,035 $ 5,042 $ 3,901
----------------------------- ======== ======= ======== ========
Operating Income:
AOL (a) $ 276 $ 210 $ 553 $ 404
Cable 443 401 829 760
Filmed Entertainment (b) 339 305 674 456
Networks (c) 602 303 1,285 755
Publishing (d) 288 164 390 245
Corporate (e) (120) (122) (300) (231)
Intersegment Eliminations 10 (7) 23 (2)
-------- ------- -------- --------
Total Operating Income $ 1,838 $1,254 $ 3,454 $ 2,387
---------------------- ======== ======= ======== ========
----------------------------------
(a) For the three and six months ended June 30, 2004, includes a
$10 million non-cash impairment related to an agreement to
sell a building.
(b) For the three and six months ended June 30, 2003, includes a
$43 million gain related to the sale of a consolidated theater
chain in the UK.
(c) For the three and six months ended June 30, 2003, includes a
non-cash impairment of $178 million in intangible assets
related to the winter sports teams (the Atlanta Thrashers, an
NHL team, and the Atlanta Hawks, an NBA team). For the six
months ended June 30, 2004, includes a $7 million loss related
to the sale of the winter sports teams.
(d) For the three and six months ended June 30, 2003, includes a
non-cash impairment of $99 million in goodwill and intangible
assets related to the Time Warner Book Group. For the six
months ended June 30, 2004, includes an $8 million gain
related to the sale of a building.
(e) For the three and six months ended June 30, 2004, includes $14
million and $67 million, respectively, of costs associated
with the relocation from the Company's former corporate
headquarters.
Presented below is a discussion of Time Warner's business segments for the second quarter of 2004, unless otherwise noted. America Online See AOL. America America [for Amerigo Vespucci], the lands of the Western Hemisphere—North America, Central (or Middle) America, and South America. The world map published in 1507 by Martin Waldseemüller is the first known cartographic use of the name. Online's Operating Income before Depreciation and Amortization climbed 13% in the quarter on a 2% increase in Revenues. Excluding the 2004 quarter's non-cash impairment Impairment 1. A reduction in a company's stated capital. 2. The total capital that is less than the par value of the company's capital stock. Notes: 1. This is usually reduced because of poorly estimated losses or gains. 2. charge of $10 million related to an agreement to sell a building, Operating Income before Depreciation and Amortization grew 15%. Operating Income rose 31%. The 2% growth in America Online's Revenues was due to improved Advertising Revenues, which climbed 23% ($42 million), led by higher revenues from paid search ($31 million). Subscription Revenues were essentially flat, reflecting favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. foreign currency exchange rates at AOL (A division of Time Warner, Inc., New York, NY, www.aol.com) The world's largest online information service with access to the Internet, e-mail, chat rooms and a variety of databases and services. Europe Europe (y  r`əp), 6th largest continent, c.4,000,000 sq mi (10,360,000 sq km) including adjacent islands (1992 est. pop. 512,000,000). ($28 million) and the consolidation of AOL Japan ($18
million) and AOL Latin America Latin America, the Spanish-speaking, Portuguese-speaking, and French-speaking countries (except Canada) of North America, South America, Central America, and the West Indies. ($13 million), offset by declines in US
Subscription Revenues and an increase in value-added taxes value-added tax (VAT), levy imposed on business at all levels of the manufacture and production of a good or service and based on the increase in price, or value, provided by each level. at AOL
Europe.The increase in Operating Income before Depreciation and Amortization reflected lower consolidated network expenses (a 23% decline, or a reduction of $147 million) and higher Advertising Revenues. This was offset partially by lower US Subscription Revenues and increased non-network expenses, particularly marketing, despite an approximate ap·prox·i·mate v. To bring together, as cut edges of tissue. adj. 1. Relating to the contact surfaces, either proximal or distal, of two adjacent teeth; proximate. 2. Close together. $25 million adjustment to reduce excess marketing accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. established in prior periods. Operating Income increased due to the aforementioned changes in Operating Income before Depreciation and Amortization, as well as lower depreciation and amortization expense. At June 30, 2004, the AOL service had 23.4 million members in the US, a decrease of 668,000 for the quarter. The quarter's decline reflects a decrease of 753,000 members in trial and retention programs, offset partly by an 85,000 increase in billed subscribers. The AOL service in Europe had 6.3 million members at June 30, 2004, reflecting a decrease of 88,000 for the quarter. Cable Cable's Operating Income before Depreciation and Amortization climbed 9% in the quarter on a 10% increase in Revenues. Operating Income rose 10%. Subscription Revenues grew 10%, driven by a 25% increase in high-speed high-speed adj. 1. Operated or designed for operation at high speed: a high-speed food processor. 2. Taking place at high speed: a high-speed chase. 3. data revenues ($86 million), enhanced digital video services and higher basic cable rates. Advertising Revenues climbed 7%. The increase in Operating Income before Depreciation and Amortization reflected the growth in Revenues and increased contributions from the high-speed data business, offset partially by a 12% increase in video programming costs ($51 million), as well as higher marketing and general operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. . Operating Income before Depreciation and Amortization included the costs associated with the roll-out of the new Digital Phone service and a $7 million incremental Additional or increased growth, bulk, quantity, number, or value; enlarged. Incremental cost is additional or increased cost of an item or service apart from its actual cost. reserve related to a legal claim settled in the quarter. The growth in Operating Income reflected the aforementioned changes in Operating Income before Depreciation and Amortization, offset in part by higher depreciation and amortization. At the end of the quarter, Time Warner Cable This article or section needs sources or references that appear in reliable, third-party publications. Alone, primary sources and sources affiliated with the subject of this article are not sufficient for an accurate encyclopedia article. managed 10.9 million basic video cable subscribers, which included nearly 1.6 million subscribers in unconsolidated joint ventures. Basic video cable subscribers declined 21,000 from the prior quarter. Time Warner Cable added 124,000 net digital video subscribers during the quarter for a total of 4.6 million subscribers, which represented 42% of basic video cable subscribers. In addition, at the end of the quarter, Time Warner Cable had 591,000 subscribers to its Digital Video Recorder See DVR. service and nearly 1.3 million subscribers to its Subscription Video-On-Demand The ability to deliver a movie, sports event or other video program to a TV set whenever the customer requests it. Video-on-demand (VOD) typically refers to free and paid programs from the cable TV companies or the telephone companies that offer video over DSL lines. services, representing 13% and 28% of digital video customers, respectively. Time Warner Cable added 127,000 net residential high-speed data subscribers in the quarter for a total of 3.5 million subscribers, which represented 19% of eligible homes passed. The net residential additions in the quarter included a net decline of non-Road Runner runner or stolon, slender, creeping stem capable of taking root where its nodes touch the ground and thereby producing new shoots. The runner itself usually dies at the end of the season, leaving independent new plants. subscribers. Time Warner Cable remains on track to deploy Digital Phone to essentially all of its 31 divisions by the end of 2004. At June 30, 2004, Digital Phone was commercially available in 15 of Time Warner Cable's divisions. Filmed Entertainment Filmed Entertainment's Operating Income before Depreciation and Amortization climbed 9% in the quarter on a 12% increase in Revenues. Excluding the 2003 quarter's $43 million gain on an asset sale, Operating Income before Depreciation and Amortization grew 23%. Operating Income rose 11% (29% excluding the aforementioned gain). Driving the increase in Filmed Entertainment's Revenues was higher theatrical and television home video revenues, theatrical product sales to television networks, and international and domestic theatrical revenues. The increase in Operating Income before Depreciation and Amortization, excluding the aforementioned gain, reflected higher contributions from theatrical and television home video sales, higher theatrical sales to television networks and lower film valuation adjustments, offset in part by higher production costs and lower revenues from consumer product license fees. Key contributors to the quarter's results were New Line's The Lord of the Rings franchise and Warner Bros BROS Brothers BROS Benefits and Retirement Operations Section (King County, Washington) BROS Barnes and Richmond Operatic Society (London, UK) .' Harry Potter A potter is someone who makes pottery. Potter may also refer to: People
For the year through July July: see month. 5, Warner Bros. and New Line generated $714 million and $197 million, respectively, in domestic box office receipts - combining for an industry-leading share of 19.4%. Notable theatrical releases during the quarter included Warner Bros.' Harry Potter and the Prisoner Prisoner may refer to one of the following:
Troy, ancient city made famous by Homer's account of the Trojan War. It is also called Ilion or, in Latin, Ilium. Its site is almost universally accepted as the mound now named Hissarlik, in Asian Turkey, c.4 mi (6. , which to date have generated worldwide box office receipts of $703 million and $484 million, respectively. Top home video releases during the quarter included Warner Bros.' The Matrix Revolutions, The Last Samurai samurai (sä'm  rī`), knights of feudal Japan, retainers of the daimyo. This aristocratic warrior class arose during the 12th-century wars between the Taira and Minamoto clans and was and Mystic River For other uses, see Mystic River (disambiguation)The Mystic River is the name of a short river in the Commonwealth of Massachusetts in the United States. Its name derives from the Native American word "Missi-Tuk", which translates to "great tidal river", and it lies to the , as well as New Line's The Lord of the Rings: The Return of the King. Earlier this month, Warner Bros. Television Warner Bros. Television is the television production and distribution arm of Time Warner's Warner Bros. Entertainment and The CW Television Network (in which Warner has a 50% ownership stake). received 39 Primetime Emmy Emmy awarded annually for best achievements in television programing and performance. [TV: Misc.] See : Prize nominations, led by The West Wing with 12 nominations - the most of any broadcast show - including its fifth straight nomination NOMINATION, This word has several significations. 1. An appointment; as, I nominate A B, executor of this my last will. 2. A proposition; the word nominate is used in this sense in the constitution of the United States, art. 2, s. for Outstanding Drama, which it has won the last four years. Networks Networks' Operating Income before Depreciation and Amortization climbed 84% in the quarter on a 10% increase in Revenues. Excluding the 2003 quarter's non-cash impairment charge of $178 million related to the winter sports winter sports: see bobsledding; curling; hockey, ice; ice dancing; ice skating; skiing; snowshoes; tobogganing. teams, Operating Income before Depreciation and Amortization grew 23%. Operating Income rose 99% (25% excluding the aforementioned impairment). Growth in Revenues was due to increases in Subscription, Advertising and Content revenues. The 14% gain in Subscription Revenues resulted from higher rates and subscribers at Turner Turner can refer to:
A form of oxygen therapy in which the patient breathes oxygen in a pressurized chamber. Mentioned in: Ozone Therapy , as well as the favorable resolution of certain contractual agreements at Turner and HBO ($50 million in aggregate). Advertising Revenues rose 6%, led by 8% growth at the Turner networks, due primarily to higher CPMs and sellouts. Content Revenues climbed 15%, due mainly to higher home video sales of HBO original programming. The increase in Operating Income before Depreciation and Amortization, excluding the aforementioned impairment, was driven by higher Revenues at HBO and Turner, as well as lower bad debt expense ($41 million) and improved results from the Atlanta Braves The Atlanta Braves are a professional baseball team based in Atlanta, Georgia. The Braves are a member of the Eastern Division of Major League Baseball's National League. From to the present, the Braves have played in Turner Field. baseball baseball, bat-and-ball sport known as the national pastime of the United States. It derives its name from the four bases that form a diamond (the infield) around the pitcher's mound. team. This growth was offset partly by higher expenses, including greater programming expenses ($100 million) and marketing expenses. Operating Income increased due to the changes in Operating Income before Depreciation and Amortization, offset partially by modestly higher levels of depreciation and amortization. Among advertising-supported cable networks, TNT TNT: see trinitrotoluene. TNT in full trinitrotoluene Pale yellow, solid organic compound made by adding nitrate (−NO2) groups to toluene. finished the quarter #1 in prime time and total-day delivery of all key adult audiences. TBS TBS Tablespoon TBS Tokyo Broadcasting System, Inc. TBS Treasury Board Secretariat (Canada) TBS Tris-Buffered Saline TBS Tris Buffered Saline TBS Turn Based Strategy (games) scored its best ever second quarter delivery among Adults 18-34 in both prime time and total day, and ranked #2 behind TNT in total-day delivery of all key adult audiences. HBO received a record 124 Primetime Emmy nominations - the most in HBO's history as well as the most of any network for the fourth year in a row. Angels in America Angels in America: A Gay Fantasia on National Themes is an award winning play in two parts by American playwright Tony Kushner. It has been made into both a television miniseries of the same name and an opera by Peter Eötvös. led all contenders with 21 nominations, while The Sopranos received 20 nominations, the most for any series. Turner Broadcasting System Turner Broadcasting System, Inc. (often abbreviated TBS Networks or TBS, inc.) is the company managing the collection of cable networks and properties started by Robert Edward "Ted" Turner from the mid-1970s to the late-1990s. received a total of seven nominations, including four for TNT and three for Cartoon Network For Cartoon Network outside of the United States, see . Cartoon Network is a cable television network created by Turner Broadcasting which primarily shows animated programming. . Publishing Publishing's Operating Income before Depreciation and Amortization rose 55% in the quarter on a 4% increase in Revenues. Excluding the 2003 quarter's non-cash impairment charge of $99 million related to the Time Warner Book Group, Operating Income before Depreciation and Amortization climbed 9%. Operating Income grew 76% (10% excluding the aforementioned impairment). The 4% gain in Revenues was led by 10% higher Advertising Revenues, due mainly to increases at Time, Real Simple, Fortune, Sports Illustrated Sports Illustrated is the largest weekly American sports magazine owned by media conglomerate Time Warner. It has over 3 million subscribers and is read by 23 million adults each week, including over 18 million men, 19% of the adult males in the country. , Entertainment Weekly and In Style. Subscription Revenue growth of 14% was related primarily to a decrease in subscription allowances, due in part to timing. In addition, both Advertising and Subscription revenues benefited from the favorable effects of foreign currency exchange rates. This growth was offset in part by decreases in Content and Other revenues due mainly to the 2003 sale of the Time Life direct marketing operation ($87 million). The increase in Operating Income before Depreciation and Amortization, excluding the aforementioned impairment, reflects growth in print advertising, the absence of the prior-year $18 million loss at Time Life and the favorable effects of currency exchange rates. This growth was offset partially by the absence of the prior-year quarter's $24 million reduction in health, welfare and legal accruals. The current year results also included $7 million of incremental expenses related to new magazine launches. Operating Income further reflected essentially flat levels of depreciation and amortization. The Time Warner Book Group added 16 titles to The New York Times bestseller list this quarter, bringing the year-to-date total to 30. Major new titles included David Sedaris's Dress Your Family in Corduroy and Denim Dress Your Family in Corduroy and Denim (2004) is a collection of 22 autobiographical essays by American humorist David Sedaris. The essays address the author's upbringing in Raleigh, North Carolina, his relationships with family members, and his work and life in New York City and and Nicholas Nicholas, Russian grand duke Nicholas (Nikolai Nikolayevich) (nyĭkəlī` nyĭkəlī`əvĭch), 1856–1929, Russian grand duke and army officer; first cousin of Czar Alexander III and grandson of Czar Sparks' Three Weeks with My Brother. Consolidated Reported Net Income and Per Share Results For the three months ended June 30, 2004, the Company reported Net Income of $777 million, or $0.17 per diluted common share ($0.19 per diluted common share before discontinued operations). This compares to Net Income in 2003 of $1.064 billion, or $0.23 per diluted common share. Certain items in the prior-year amount affected comparability, including $277 million in pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta non-cash impairments of goodwill and intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. at the Networks and Publishing segments, a $43 million pre-tax gain on a Filmed Entertainment asset sale, $6 million of pre-tax restructuring charges restructuring charge The expense of reorganizing a company's operations. A restructuring charge is an infrequent expense that generally results from asset writedowns or facility closings. , $760 million of other income associated with the Microsoft (Microsoft Corporation, Redmond, WA, www.microsoft.com) The most successful and influential software company. Microsoft's software and Intel's hardware pioneered the PC and revolutionized the computer industry. settlement and $391 million of pre-tax net investment gains. In aggregate, these items had the net effect of increasing the previous-year's net income by $528 million (net of taxes) or $0.12 per diluted common share. Excluding such items, the growth in Net Income and Diluted Net Income per Share was driven primarily by an increase in Operating Income and lower interest expense, which were offset in part by losses from discontinued operations. Use of Operating Income before Depreciation and Amortization, Adjusted Operating Income before Depreciation and Amortization and Use of 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 non-cash impairments of goodwill, intangible and fixed assets fixed assets npl → activo sg fijo fixed assets npl → immobilisations fpl fixed assets fix npl → , as well as gains and losses on asset sales (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 non-cash depreciation of tangible assets Tangible Asset An asset that has a physical form such as machinery, buildings and land. Notes: This is the opposite of an intangible asset such as a patent or trademark. Whether an asset is tangible or intangible isn't inherently good or bad. 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 Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. tangible Possessing a physical form that can be touched or felt. Tangible refers to that which can be seen, weighed, measured, or apprehended by the senses. A tangible object is something that is real and substantial. An automobile is an example of tangible Personal Property. 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 diminution in value n. in the event of a breach of contract, the decrease in value of property due to the failure to construct something exactly as specified in the contract. 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. The Company also utilizes Free Cash Flow to evaluate the performance of its businesses. Free Cash Flow is Cash Provided by Operations (as defined by accounting principles generally accepted in the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. ) less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases, dividends paid and partnership distributions, if any. Free Cash Flow is considered to be an important indicator Indicator Anything used to predict future financial or economic trends. Notes: In the context of technical analysis, an indicator is a mathematical calculation based on a securities price and/or volume. The result is used to predict future prices. of the Company's ability to reduce net debt and make strategic investments. 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 reported in accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with accounting principles generally accepted in the United States. 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. Time Warner Inc. issued a separate release today regarding its full-year 2004 business outlook. The Company's earnings conference call can be heard live at 10 am ET on Wednesday Wednesday: see week. , July 28, 2004. To listen to the call, visit www.timewarner.com/investors or AOL Keyword (1) A word used in a text search. (2) A word in a text document that is used in an index to best describe the contents of the document. (3) A reserved word in a programming or command language. 1. : IR. Caution Concerning Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. These statements are based on management's current expectations or beliefs, and are subject to uncertainty and changes in circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or . Actual results may vary materially from those expressed or implied Inferred from circumstances; known indirectly. In its legal application, the term implied is used in contrast with express, where the intention regarding the subject matter is explicitly and directly indicated. by the statements herein due to changes in economic, business, competitive, technological and/or and/or conj. Used to indicate that either or both of the items connected by it are involved. Usage Note: And/or is widely used in legal and business writing. regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. factors, and other factors affecting the operation of the businesses of Time Warner Inc. More detailed information about these factors may be found in filings by Time Warner with the Securities and Exchange Commission, including its most recent annual report on Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and its most recent quarterly report on Form 10-Q Form 10-Q See 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.
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, Dec. 31,
2004 2003
-------- --------
(millions, except
ASSETS per share amounts)
Current assets
Cash and equivalents $ 6,226 $ 3,040
Receivables, less allowances of $2.033 and $2.079
billion 4,655 4,908
Inventories 1,422 1,390
Prepaid expenses and other current assets 1,210 1,255
Current assets of discontinued operations 34 1,675
-------- --------
Total current assets 13,547 12,268
Noncurrent inventories and film costs 4,267 4,465
Investments, including available-for-sale securities 3,841 3,770
Property, plant and equipment 12,593 12,559
Intangible assets subject to amortization 3,957 4,229
Intangible assets not subject to amortization 39,656 39,656
Goodwill 39,557 39,459
Other assets 2,866 2,745
Noncurrent assets of discontinued operations - 2,632
-------- --------
Total assets $120,284 $121,783
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,284 $ 1,629
Participations payable 2,371 1,955
Royalties and programming costs payable 1,144 1,022
Deferred revenue 971 1,065
Debt due within one year 3,161 2,287
Other current liabilities 4,903 6,091
Current liabilities of discontinued operations 95 1,574
-------- --------
Total current liabilities 13,929 15,623
Long-term debt 21,151 23,458
Deferred income taxes 14,617 13,291
Deferred revenue 1,504 1,621
Mandatorily convertible preferred stock 1,500 1,500
Other liabilities 3,921 3,950
Minority interests 5,511 5,401
Noncurrent liabilities of discontinued operations 33 901
Shareholders' equity
Series LMCN-V common stock, $0.01 par value, 171.2
million shares outstanding in each period 2 2
Time Warner common stock, $0.01 par value, 4.397
and 4.365 billion shares outstanding 44 44
Paid-in capital 155,953 155,578
Accumulated other comprehensive loss, net (324) (291)
Accumulated deficit (97,557) (99,295)
-------- --------
Total shareholders' equity 58,118 56,038
-------- --------
Total liabilities and shareholders' equity $120,284 $121,783
======== ========
See accompanying notes.
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- ------------------------
2004 2003 2004 2003
-------- -------- -------- --------
(millions, except per share amounts)
Revenues:
Subscriptions $ 5,514 $ 5,118 $ 10,769 $ 10,053
Advertising 1,846 1,678 3,293 3,016
Content 3,237 2,771 6,354 5,348
Other 291 355 598 741
-------- -------- -------- --------
Total revenues 10,888 9,922 21,014 19,158
Costs of revenues (6,341) (5,839) (12,321) (11,503)
Selling, general and
administrative (2,544) (2,439) (4,921) (4,722)
Restructuring costs 2 (6) 2 (30)
Amortization of
intangible assets (157) (150) (311) (282)
Asset impairments (10) (277) (10) (277)
Gains on disposal of
assets - 43 1 43
-------- -------- -------- --------
Operating income 1,838 1,254 3,454 2,387
Interest expense, net (383) (453) (787) (881)
Other income, net 33 1,112 64 1,206
Minority interest
expense (62) (60) (118) (116)
-------- -------- -------- --------
Income before income
taxes, discontinued
operations and
cumulative effect of
accounting change 1,426 1,853 2,613 2,596
Income tax provision (544) (792) (1,019) (1,105)
-------- -------- -------- --------
Income before
discontinued
operations and
cumulative effect of
accounting change 882 1,061 1,594 1,491
Discontinued
operations, net of
tax (105) 3 110 (31)
-------- -------- -------- --------
Income before
cumulative effect of
accounting change 777 1,064 1,704 1,460
Cumulative effect of
accounting change,
net of tax - - 34 -
-------- -------- -------- --------
Net income $ 777 $ 1,064 $ 1,738 $ 1,460
======== ======== ======== ========
Basic income per
common share before
discontinued
operations and
cumulative effect of
accounting change $ 0.19 $ 0.24 $ 0.35 $ 0.33
Discontinued
operations (0.02) - 0.02 -
Cumulative effect of
accounting change - - 0.01 -
-------- -------- -------- --------
Basic net income per
common share $ 0.17 $ 0.24 $ 0.38 $ 0.33
======== ======== ======== ========
Diluted income per
common share before
discontinued
operations and
cumulative effect of
accounting change $ 0.19 $ 0.23 $ 0.34 $ 0.33
Discontinued
operations (0.02) - 0.02 (0.01)
Cumulative effect of
accounting change - - 0.01 -
-------- -------- -------- --------
Diluted net income
per common share $ 0.17 $ 0.23 $ 0.37 $ 0.32
======== ======== ======== ========
Average basic common
shares 4,561.7 4,500.5 4,555.4 4,491.8
======== ======== ======== ========
Average diluted
common shares 4,700.7 4,648.9 4,698.1 4,586.8
======== ======== ======== ========
---------------------
See accompanying notes.
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30,
(Unaudited)
2004 2003
-------- --------
(millions)
OPERATIONS
Net income(a) $ 1,738 $ 1,460
Adjustments for noncash and nonoperating items:
Cumulative effect of an accounting change (34) -
Depreciation and amortization 1,588 1,514
Amortization of film costs 1,437 1,346
Asset impairments 10 277
Loss on writedown of investments 2 169
Gain on sale of investments, net (56) (694)
Equity in losses of investee companies and
cash distributions (7) 52
Changes in operating assets and liabilities, net
of acquisitions (1,382) (559)
Adjustments relating to discontinued operations 10 230
-------- --------
Cash provided by operations 3,306 3,795
-------- --------
INVESTING ACTIVITIES
Investments and acquisitions, net of cash acquired (213) (354)
Investments and acquisitions from discontinued
operations - (34)
Capital expenditures and product development costs
from continuing operations (1,341) (1,220)
Capital expenditures from discontinued operations - (43)
Investment proceeds from available-for-sale
securities 32 909
Investment proceeds from discontinued operations - 6
Other investment proceeds 2,640 1,373
-------- --------
Cash provided by investing activities 1,118 637
-------- --------
FINANCING ACTIVITIES
Borrowings 1,489 1,843
Debt repayments (2,865) (5,216)
Redemption of redeemable preferred securities of
subsidiary - (813)
Proceeds from exercise of stock options 224 191
Principal payments on capital leases (102) (67)
Other 16 (26)
-------- --------
Cash used by financing activities (1,238) (4,088)
-------- --------
INCREASE IN CASH AND EQUIVALENTS 3,186 344
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 3,040 1,730
-------- --------
CASH AND EQUIVALENTS AT END OF PERIOD $ 6,226 $ 2,074
======== ========
--------------------------
(a) Includes net income from discontinued operations of $110
million for the six months ended June 30, 2004 and a net loss
of $31 million for the six months ended June 30, 2003.
See accompanying notes.
TIME WARNER INC.
RECONCILIATION OF OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION TO OPERATING INCOME
(millions, unaudited)
Three Months Ended June 30, 2004
Operating Income
before Depreciation Operating
and Amortization Depreciation Amortization Income
------------------- ------------ ------------ ------
AOL(a) $ 487 $ (170) $ (41) $ 276
Cable 817 (355) (19) 443
Filmed Entertainment 417 (25) (53) 339
Networks 661 (51) (8) 602
Publishing 357 (33) (36) 288
Corporate (112) (8) - (120)
Intersegment elimination 10 - - 10
------- ------- ------- -------
Total $ 2,637 $ (642) $ (157) $ 1,838
======= ======= ======= =======
Three Months Ended June 30, 2003
Operating Income
before Depreciation Operating
and Amortization Depreciation Amortization Income
------------------- ------------ ------------ ------
AOL $ 431 $ (177) $ (44) $ 210
Cable 752 (349) (2) 401
Filmed Entertainment(b) 382 (23) (54) 305
Networks(c) 359 (47) (9) 303
Publishing(d) 230 (25) (41) 164
Corporate (112) (10) - (122)
Intersegment elimination (7) - - (7)
------- ------- ------- -------
Total $ 2,035 $ (631) $ (150) $ 1,254
======= ======= ======= =======
-------------------------
(a) Operating income before depreciation and amortization and
operating income includes a $10 million impairment of
property, plant and equipment related to an agreement to sell
a building in Virginia.
(b) Operating income before depreciation and amortization and
operating income includes a $43 million gain related to the
sale of a consolidated theater chain in the U.K.
(c) Operating income before depreciation and amortization and
operating income includes a $178 million impairment of
intangible assets related to the winter sports teams.
(d) Operating income before depreciation and amortization and
operating income includes a $99 million impairment of goodwill
and other intangible assets related to the Time Warner Book
Group.
TIME WARNER INC.
RECONCILIATION OF OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION TO OPERATING INCOME
(millions, unaudited)
Six Months Ended June 30, 2004
Operating Income
before Depreciation Operating
and Amortization Depreciation Amortization Income
----------------- ------------ ------------ ------
AOL(a) $ 976 $ (340) $ (83) $ 553
Cable 1,567 (701) (37) 829
Filmed
Entertainment 829 (49) (106) 674
Networks(c) 1,396 (100) (11) 1,285
Publishing(d) 527 (63) (74) 390
Corporate (276) (24) - (300)
Intersegment
elimination 23 - - 23
------- ---------- -------- -------
Total $ 5,042 $ (1,277) $ (311) $ 3,454
======= ========== ======== =======
Six Months Ended June 30, 2003
Operating Income
before Depreciation Operating
and Amortization Depreciation Amortization Income
----------------- ------------ ------------ ------
AOL $ 835 $ (348) $ (83) $ 404
Cable 1,443 (679) (4) 760
Filmed
Entertainment(b) 601 (43) (102) 456
Networks(c) 859 (92) (12) 755
Publishing(d) 378 (52) (81) 245
Corporate (213) (18) - (231)
Intersegment
elimination (2) - - (2)
------- ---------- -------- -------
Total $ 3,901 $ (1,232) $ (282) $ 2,387
======= ========== ======== =======
____________________
(a) Operating income before depreciation and amortization and
operating income includes a $10 million impairment of
property, plant and equipment related to an agreement to sell
a building in Virginia.
(b) Operating income before depreciation and amortization and
operating income includes a $43 million gain related to the
sale of a consolidated theater chain in the U.K.
(c) For the six months ended June 30, 2004, operating income
before depreciation and operating income includes a $7 million
loss on the finalization of the winter sports teams sale in
the first quarter of 2004. For the six months ended June 30,
2003, operating income before depreciation and amortization
and operating income includes a $178 million impairment of
intangible assets related to the winter sports teams.
(d) For the six months ended June 30, 2004, operating income
before depreciation and amortization and operating income
includes an $8 million pre-tax gain on the sale of a building
located in Virginia. For the six months ended June 30, 2003,
operating income before depreciation and amortization and
operating income includes a $99 million impairment of goodwill
and other intangible assets related to the Time Warner Book
Group.
TIME WARNER INC.
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION TO OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(millions, unaudited)
Three Months Ended June 30, 2004
Adjusted Operating Operating
Income Before Gains/(Losses) Income Before
Depreciation And Asset From Asset Depreciation And
Amortization Impairments Disposals Amortization
------------ ----------- --------- ------------
AOL(a) $ 497 $ (10) $ - $ 487
Cable 817 - - 817
Filmed
Entertainment 417 - - 417
Networks 661 - - 661
Publishing 357 - - 357
Corporate (112) - - (112)
Intersegment
elimination 10 - - 10
-------- -------- ------- ---------
Total $ 2,647 $ (10) $ - $ 2,637
======== ======== ======= =========
Three Months Ended June 30, 2003
Adjusted Operating Operating
Income Before Gains/(Losses) Income Before
Depreciation And Asset From Asset Depreciation And
Amortization Impairments Disposals Amortization
------------ ----------- --------- ------------
AOL $ 431 $ - $ - $ 431
Cable 752 - - 752
Filmed
Entertainment(b) 339 - 43 382
Networks(c) 537 (178) - 359
Publishing(d) 329 (99) - 230
Corporate (112) - - (112)
Intersegment
elimination (7) - - (7)
-------- -------- ------- ---------
Total $ 2,269 $ (277) $ 43 $ 2,035
======== ======== ======= =========
____________________
(a) Operating income before depreciation and amortization includes
a $10 million impairment of property, plant and equipment
related to an agreement to sell a building in Virginia.
(b) Operating income before depreciation and amortization includes
a $43 million gain related to the sale of a consolidated
theater chain in the U.K.
(c) Operating income before depreciation and amortization includes
a $178 million impairment of intangible assets related to the
winter sports teams.
(d) Operating income before depreciation and amortization includes
a $99 million impairment of goodwill and other intangible
assets related to the Time Warner Book Group.
TIME WARNER INC.
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION TO OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(millions, unaudited)
Six Months Ended June 30, 2004
Adjusted Operating Operating
Income Before Gains/(Losses) Income Before
Depreciation And Asset From Asset Depreciation And
Amortization Impairments Disposals Amortization
------------ ----------- --------- ------------
AOL(a) $ 986 $ (10) $ - $ 976
Cable 1,567 - - 1,567
Filmed
Entertainment 829 - - 829
Networks(c) 1,403 - (7) 1,396
Publishing(d) 519 - 8 527
Corporate (276) - - (276)
Intersegment
elimination 23 - - 23
-------- -------- ------- ---------
Total $ 5,051 $ (10) $ 1 $ 5,042
======== ======== ======= =========
Six Months Ended June 30, 2003
Adjusted Operating Operating
Income Before Gains/(Losses) Income Before
Depreciation And Asset From Asset Depreciation And
Amortization Impairments Disposals Amortization
------------ ----------- --------- ------------
AOL $ 835 $ - $ - $ 835
Cable 1,443 - - 1,443
Filmed
Entertainment(b) 558 - 43 601
Networks(c) 1,037 (178) - 859
Publishing(d) 477 (99) - 378
Corporate (213) - - (213)
Intersegment
elimination (2) - - (2)
-------- -------- ------- ---------
Total $ 4,135 $ (277) $ 43 $ 3,901
======== ======== ======= =========
____________________
(a) Operating income before depreciation and amortization includes
a $10 million impairment of property, plant and equipment
related to an agreement to sell a building in Virginia.
(b) Operating income before depreciation and amortization includes
a $43 million gain related to the sale of a consolidated
theater chain in the U.K.
(c) For the six months ended June 30, 2004, operating income
before depreciation includes a $7 million loss on the
finalization of the winter sports teams sale in the first
quarter of 2004. For the six months ended June 30, 2003,
operating income before depreciation and amortization and
operating income includes a $178 million impairment of
intangible assets related to the winter sports teams.
(d) For the six months ended June 30, 2004, operating income
before depreciation and amortization includes an $8 million
pre-tax gain on the sale of a building located in Virginia.
For the six months ended June 30, 2003, operating income
before depreciation and amortization and operating income
includes a $99 million impairment of goodwill and other
intangible assets related to the Time Warner Book Group.
TIME WARNER INC.
RECONCILIATION OF CASH PROVIDED BY OPERATIONS TO FREE CASH FLOW
(millions, unaudited)
Time Warner evaluates operating performance based on several factors,
including free cash flow, which is defined as cash provided by
operations less cash provided by discontinued operations, capital
expenditures and product development costs, principal payments on
capital leases, dividends paid and partnership distributions, if any.
Three Months Ended June 30, Six Months Ended June 30,
--------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
Cash provided by
operations $ 1,487 $ 2,250 $ 3,306 $ 3,795
Less discontinued
operations:
Net (income)
loss 105 (3) (110) 31
Other changes (84) 28 (10) (230)
-------- -------- -------- --------
Cash provided by
continuing
operations 1,508 2,275 3,186 3,596
Capital
expenditures and
product
development costs
from continuing
operations (784) (680) (1,341) (1,220)
Principal payments
on capital leases
from continuing
operations (54) (36) (102) (67)
-------- -------- -------- --------
Free cash flow $ 670 $ 1,559 $ 1,743 $ 2,309
======== ======== ======== ========
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Description of Business, Basis of Presentation, and Update on Status of Government Investigations Description of Business Time Warner Inc. ("Time Warner" or the "Company") is a leading media and entertainment company. Time Warner classifies its business interests into five fundamental areas: AOL, consisting principally of interactive services; Cable, consisting principally of interests in cable systems that provide video programming, high-speed data and Digital Phone services; Filmed Entertainment, consisting principally of feature film, television and home video production and distribution; Networks, consisting principally of cable television and broadcast networks; and Publishing, consisting principally of magazine and book publishing book publishing. The term publishing means, in the broadest sense, making something publicly known. Usually it refers to the issuing of printed materials, such as books, magazines, periodicals, and the like. . Basis of Presentation Reclassifications Certain reclassifications have been made to prior-year's financial information to conform to the current year presentation, including a reclassification impacting the Company and the Filmed Entertainment segment's operating results to reflect a change in how the Company classifies the accretion of discounts on long-term film licensing arrangements. Previously, the Company classified the accretion of discounts on long-term film licensing arrangements within Operating Income. Such accretion is now being classified as a reduction of interest expense, net. The accretion for the three and six months ended June 30, 2004 was $28 million and $53 million, respectively, and for the three and six months ended June 30, 2003 was $25 million and $57 million, respectively. Such reclassifications did not affect Net Income, Cash Provided by Operations or Free Cash Flow. 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 non-cash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales (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 non-cash 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. The Company also utilizes Free Cash Flow to evaluate the performance of its businesses. Free Cash Flow is Cash Provided by Operations (as defined by accounting principles generally accepted in the United States) less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases, dividends paid and partnership distributions, if any. Free Cash Flow is considered to be an important indicator of the Company's ability to reduce debt and make strategic investments. 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 reported in accordance with accounting principles generally accepted in the United States. Warner Village Cinemas S.P.A. Warner Village Cinemas S.P.A. is a joint venture arrangement that operates cinemas in Italy Italy (ĭt`əlē), Ital. Italia, officially Italian Republic, republic (2005 est. pop. 58,103,000), 116,303 sq mi (301,225 sq km), S Europe. and is owned 45% by Warner Bros., 45% by Village Cinemas International Pty. Ltd. (an Australian Australian pertaining to or originating in Australia. Australian bat lyssavirus disease see Australian bat lyssavirus disease. Australian cattle dog a medium-sized, compact working dog used for control of cattle. company) and 10% by a third-party investor. In April 2004, Warner Bros. and Village Cinemas International agreed that: (i) Warner Bros. would control the voting rights Voting rights The right to vote on matters that are put to a vote of security holders. For example the right to vote for directors. voting rights The type of voting and the amount of control held by the owners of a class of stock. associated with Village Cinemas International's 45% interest and (ii) beginning in March 2007 and continuing for one year, Village Cinemas International can request that Warner Bros. buy Village Cinemas International's interest at fair value. In the event Warner Bros. does not agree to buy such interests, both Warner Bros. and Village Cinemas International would place their collective interests for sale. If such right is not exercised by Village Cinemas International, the voting rights associated with the 45% interest will revert re·vert v. 1. To return to a former condition, practice, subject, or belief. 2. To undergo genetic reversion. to Village Cinemas International in March 2008. As a result of controlling Village Cinemas International's voting interest Voting interest in business and accounting is a percentage of voting stock owned. This notion is different from economic interest that refers to a percentage of all the equity issued, including preferred stock, warrants, and so on. , Warner Bros. began consolidating the results of Warner Village Cinemas S.P.A. in the second quarter of 2004. As permitted by accounting principles generally accepted in the United States, Warner Village Cinemas S.P.A.'s results have been consolidated retroactive Having reference to things that happened in the past, prior to the occurrence of the act in question. A retroactive or retrospective law is one that takes away or impairs vested rights acquired under existing laws, creates new obligations, imposes new duties, or attaches a to the beginning of the year. For the three and six months of 2004, Warner Village Cinemas' revenues were $23 million and $59 million, respectively, its Operating Income before Depreciation and Amortization was $2 million and $12 million, respectively, and its Operating Income was $0 and $8 million, respectively. Urban Cable Works of Philadelphia Philadelphia, ancient cities Philadelphia, name of several ancient cities. One was in Lydia, W Asia Minor (now W Turkey). At the foot of Mt. Tmolus and near the location of modern Alaşehir, it was founded in the 2d cent. B.C. , L.P. Urban Cable Works of Philadelphia, L.P. ("Urban Cable") is an unconsolidated joint venture of Time Warner Cable Inc. ("TWC TWC The Weather Channel TWC Time-Warner Cable TWC Texas Workforce Commission (also seen as TWFC) TWC The Wellness Community TWC The Washington Center TWC Teachers & Writers Collaborative TWC Trustworthy Computing Inc."), with 52 thousand basic subscribers, that operates cable television systems in Philadelphia, Pennsylvania Pennsylvania (pĕnsəlvā`nyə), one of the Middle Atlantic states of the United States. It is bordered by New Jersey, across the Delaware River (E), Delaware (SE), Maryland (S), West Virginia (SW), Ohio (W), and Lake Erie and New York . Urban Cable is 40% owned by TWC Inc. and 60% owned by an investment group led by Inner City Broadcasting ("Inner City"). Under a management agreement, TWC Inc. is responsible for day-to-day day-to-day adj. 1. Occurring on a routine or daily basis: the day-to-day movements of the stock market. 2. management of Urban Cable. TWC Inc. and Inner City have agreed to settle certain disputes regarding the joint venture. TWC Inc. accrued ac·crue v. ac·crued, ac·cru·ing, ac·crues v.intr. 1. To come to one as a gain, addition, or increment: interest accruing in my savings account. 2. $27 million in March 2004, based on an estimate of TWC Inc.'s cost to resolve this dispute, and accrued an additional $7 million during the second quarter in connection with the final settlement. TWC Inc. has also agreed to purchase, subject to receipt of applicable regulatory approvals, all of Inner City's interests in the venture for approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $53 million in cash. In addition, upon consolidation of Urban Cable, TWC Inc. will eliminate debt and interest owed to it by Urban Cable of $65 million and will assume $58 million of Urban Cable's third party debt. This transaction is expected to close before the end of the year. For the six months ended June 30, 2004, Urban Cable's revenues, Operating Income before Depreciation and Amortization and Operating Income were $24 million, $8 million, and $2 million, respectively. Discontinued Operations Presentation of Music Segment On March 1, 2004, the Company closed on the sale of its Warner Music Group's recorded music recorded music n → música grabada and music publishing The contractual relationship between a songwriter or music composer and a music publisher, whereby the writer assigns part or all of his or her music copyrights to the publisher in exchange for the publisher's commercial exploitation of the music. businesses for $2.6 billion in cash and an option to reacquire a minority stake in the operations sold. On October October: see month. 24, 2003, the Company closed on the sale of its DVD DVD: see digital versatile disc. DVD in full digital video disc or digital versatile disc Type of optical disc. The DVD represents the second generation of compact-disc (CD) technology. and CD manufacturing business for $1.05 billion in cash. Upon closing these transactions, the Company disposed dis·pose v. dis·posed, dis·pos·ing, dis·pos·es v.tr. 1. To place or set in a particular order; arrange. 2. of its entire music business. As previously discussed in the Company's Annual Report on Form 10-K for the fiscal year ended December December: see month. 31, 2003 (the "2003 Form 10-K"), the results of the Music segment are being presented as discontinued operations for all periods. See Note 5. Update on Status of Government Investigations The Securities and Exchange Commission ("SEC") and the Department of Justice ("DOJ (Department Of Justice) The legal arm of the U.S. government that represents the public interest of the United States. It is headed by the Attorney General. ") continue to conduct investigations into accounting and disclosure practices of the Company. Those investigations are focused on transactions principally involving the Company's America Online unit that were entered into after July 1, 1999, including advertising arrangements and the methods used by the America Online unit to report its subscriber subscriber, n the person, usually the employee, who represents the family unit in relation to the prepayment plan. Other family members are dependents. Also called certificate holders or enrollees. numbers. In its Annual Report on Form 10-K for the fiscal year ended December 31, 2002, which was filed with the SEC on March 28, 2003, the Company disclosed dis·close tr.v. dis·closed, dis·clos·ing, dis·clos·es 1. To expose to view, as by removing a cover; uncover. 2. To make known (something heretofore kept secret). that the staff of the SEC had recently informed the Company that, based on information provided to the SEC by the Company, it was the preliminary view of the SEC staff that the Company's accounting for two related transactions between America Online and Bertelsmann AG Bertelsmann AG German media company. Beginning as a religious printer and publisher in 1835, the company grew steadily over the next century. Though virtually destroyed by Allied bombing in 1945, it recovered quickly after World War II. should be adjusted. For a description of those transactions, see Management's Discussion and Analysis Management's discussion and analysis (MD&A) A report from management to shareholders that accompanies the firm's financial statements in the annual report. It explains the period's financial results and enables management to discuss topics that may not be apparent in the financial of Results of Operations and Financial Condition and Note 18 to the financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2003 (filed with the SEC on March 15, 2004). At that time, the Company further disclosed that it had provided the SEC a written explanation of the basis for the Company's accounting for these transactions and the reasons why both the Company and its auditors AUDITORS, practice. Persons lawfully appointed to examine and digest accounts referred to them, take down the evidence in writing, which may be lawfully offered in relation to such accounts, and prepare materials on which a decree or judgment may be made; and to report the whole, together continued to believe that these transactions had been accounted for correctly. The staff of the SEC has continued to review the Company's accounting for the Bertelsmann For the foundation, see . Bertelsmann AG is a transnational media corporation founded in 1835, based in Gütersloh, Germany. The company operates in 63 countries and employs over 100,000 workers (as of June 30, 2007). In 2006 the company reported a € 19. transactions, as well as other transactions primarily at the America Online unit. In July 2003, the Office of the Chief Accountant A person who has the requisite skill and experience in establishing and maintaining accurate financial records for an individual or a business. The duties of an accountant may include designing and controlling systems of records, auditing books, and preparing financial statements. of the SEC informed the Company that it had concluded that the accounting for these transactions is incorrect Incorrect means to not be correct and may also refer to:
The staff of the SEC continues to investigate, and the Company continues to discuss with the SEC staff, these and other transactions principally involving the America Online unit. It is possible that the Company may learn information as a result of the discussions with the SEC, the Company's ongoing review, and/or the SEC's ongoing investigation that would lead the Company to reconsider re·con·sid·er v. re·con·sid·ered, re·con·sid·er·ing, re·con·sid·ers v.tr. 1. To consider again, especially with intent to alter or modify a previous decision. 2. its views of the accounting for these transactions. It is also possible that restatement Restatement A revision in a company's earlier financial statements. Notes: The need for restating financial figures can result from fraud, misrepresentation, or a simple clerical error. of the Company's financial statements with respect to these transactions may be necessary. In light of the conclusion of the Office of the Chief Accountant that the accounting for the Bertelsmann transactions is incorrect, it is likely that the SEC would not declare TO DECLARE. To make known or publish. By tho constitution of the United States, congress have power to declare war. In this sense the word, declare, signifies, not merely to make it known that war exists, but also to make war and to carry it on. 4 Dall. 37; 1 Story, Const. Sec. effective any registration statement of the Company or its affiliates, such as any potential initial public offering of Time Warner Cable Inc., until this matter is resolved. As noted, the SEC staff continues to investigate a range of transactions principally involving the Company's America Online unit, including advertising arrangements and the methods used by the America Online unit to report its subscriber numbers. The DOJ also continues to investigate matters relating to relating to relate prep → concernant relating to relate prep → bezüglich +gen, mit Bezug auf +acc these transactions and transactions involving certain third parties with whom America Online had commercial relationships. The Company intends to continue its efforts to cooperate with both the SEC and the DOJ investigations to resolve these matters. As part of its ongoing review, the Company reviews information that comes to its attention. For example, the Company has recently begun a review of the accounting related to the consolidation of, and equity accounting for, its interest in AOL Europe prior to January January: see month. 2002. The Company may not currently have access to all relevant information that may come to light in these investigations, including but not limited to information in the possession of third parties who entered into agreements with America Online during the relevant time period. It is not yet possible to predict the outcome of these investigations and review, but it is possible that further restatement of the Company's financial statements may be necessary. It is also possible that, so long as there are unresolved Not completed; not finished; not linked together. See resolve. issues associated with the Company's financial statements, the effectiveness of any registration statement of the Company or its affiliates may be delayed. Note 2: FASB FASB See: Financial Accounting Standards Board FASB See Financial Accounting Standards Board (FASB). Interpretation No. 46, Consolidation of Variable Interest Entities Pursuant to the provisions of FASB Interpretation No. 46, "Consolidation of Variable Interest Entities - an Interpretation of ARB No. 51" ("FIN fin, organ of locomotion characteristic of fish and consisting of thin tissue supported by cartilaginous or bony rays. In some fish, e.g., the eel, a single fin extends from the back, around the tail, and along the ventral surface. 46"), the Company began consolidating the operations of America Online Latin America, Inc. ("AOLA AOLA America Online Latin America ") as of March 31, 2004. In December 2003, the FASB issued a revision (programming) revision - A release of a piece of software which is not a major release or a bugfix, but only introduces small changes or new features. of FIN 46 ("FIN 46R") to replace FIN 46. AOLA is a publicly traded entity whose significant shareholders include the Company, the Cisneros Group The Cisneros Group of Companies is one of the largest, privately held media, entertainment, telecommunications and consumer products organizations in the world. The Group owns or holds interests in companies ranging from broadcast television, networks and pay television businesses (a private investment company) and Banco Itau (a leading Brazilian bank). AOLA provides online services principally to customers in Brazil Brazil (brəzĭl`), Port. Brasil, officially Federative Republic of Brazil, republic (2005 est. pop. 186,113,000), 3,286,470 sq mi (8,511,965 sq km), E South America. , Mexico Mexico, city, Mexico Mexico or Mexico City, Span. Ciudad de México (Méjico), city (1990 pop. 8,236,960; 1991 met. area est. 20,899,000), central Mexico, capital and largest city of Mexico. , Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. and Argentina Argentina (ärjəntē`nə, Span. ärhāntē`nä), officially Argentine Republic, republic (2005 est. pop. 39,538,000), 1,072,157 sq mi (2,776,889 sq km), S South America. . The Company has no obligation to provide additional funding for AOLA's operations and the creditors of AOLA have no recourse The right of an individual who is holding a Commercial Paper, such as a check or promissory note, to receive payment on it from anyone who has signed it if the individual who originally made it is unable, or refuses, to tender payment. to the Company. In accordance with the transition provisions of FIN 46R, the assets and liabilities of AOLA were recorded in the Company's consolidated balance sheet consolidated balance sheet A balance sheet in which assets and liabilities of a parent company and its controlled subsidiaries are combined, thereby presenting balance sheet items for the parent and its subsidiaries as if they were a single firm. as of March 31, 2004 in the amounts at which they would have been carried if FIN 46R had been effective when the Company first met the conditions to be considered the primary beneficiary beneficiary Person or entity (e.g., a charity or estate) that receives a benefit from something (e.g., a trust, life-insurance policy, or contract). A primary beneficiary receives proceeds from a trust or insurance policy before any other. of AOLA. Upon consolidating the balance sheet of AOLA, the Company recorded incremental assets of approximately $85 million and liabilities of $29 million, with the difference of $56 million recognized as the pre-tax cumulative effect of an accounting change ($34 million on an after-tax basis After-tax basis The comparison basis used to analyze the net after-tax returns on a corporate taxable bond and a municipal tax-free bond. ). Prior periods have not been restated. The Company consolidated the operating results of AOLA's operations commencing April 1, 2004. In order to provide the time necessary to consolidate Consolidate To combine the assets, liabilities, and other financial items of two or more entities into one. Notes: This term is generally used in the context of consolidated financial statements. and evaluate the AOLA financial information, the AOLA financial statements are consolidated by the Company on a one-quarter time lag. For the three months ended June 30, 2004, the Company recognized an Operating Loss operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. before Depreciation and Amortization of $3 million and an Operating Loss of $6 million associated with AOLA. Note 3: Other Transactions and Items Affecting Comparability
Three Months Six Months
Ended June 30, Ended June 30,
-------------- ---------------
2004 2003 2004 2003
------ ------- ------ -------
Items that impact operating income: (millions)
Restructuring costs $ 2 $ (6) $ 2 $ (30)
Asset impairments (10) (277) (10) (277)
Net gain on disposal of assets - 43 1 43
------ ------- ------ -------
Impact on operating income (8) (240) (7) (264)
------ ------- ------ -------
Items that impact other income
(expense), net:
Microsoft Settlement - 760 - 760
Investment gains 16 542 55 651
Loss on investments, net (6) (151) (9) (157)
------ ------- ------ -------
Impact on other income, net 10 1,151 46 1,254
------ ------- ------ -------
Pre-tax impact 2 911 39 990
Income tax impact (1) (383) (16) (415)
------ ------- ------ -------
After-tax impact $ 1 $ 528 $ 23 $ 575
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Restructuring restructuring - The transformation from one representation form to another at the same relative abstraction level, while preserving the subject system's external behaviour (functionality and semantics). Costs Restructuring costs consist of charges related to employee terminations and exit activities, which are expensed in accordance with accounting principles generally accepted in the United States. During the three and six months ended June 30, 2004, the Company reflected a $2 million reduction in restructuring costs at AOL, reflecting changes in estimates of previously established restructuring accruals. During the three months ended June 30, 2003, the Company incurred restructuring costs of $6 million at Publishing. During the six months ended June 30, 2003, the Company incurred restructuring costs of $30 million, including $4 million at AOL, $8 million at Networks, and $18 million at Publishing. These costs are included in "restructuring costs" in the accompanying consolidated statement of operations See Income statement. . Asset Impairments Impairment of Goodwill and Intangible Assets During the second quarter of 2003, the Company recorded a $178 million intangible asset impairment charge related to the winter sports teams at the Networks segment and also recorded a $99 million goodwill and intangible asset impairment charge at the Publishing segment related to the Time Warner Book Group. These impairments were recognized as a result of fair value information obtained at the time through negotiations with third parties about the potential disposition Act of disposing; transferring to the care or possession of another. The parting with, alienation of, or giving up of property. The final settlement of a matter and, with reference to decisions announced by a court, a judge's ruling is commonly referred to as disposition, regardless of of these businesses. These amounts are included in operating income in the accompanying 2003 consolidated statement of operations. Impairment of Property Plant and Equipment For the three and six months ended June 30, 2004, the Company recognized a $10 million impairment charge related to the pending sale of a building at the AOL segment, which is expected to close in the third quarter of 2004. This amount is included in operating income in the accompanying statement of operations. Gain/(loss) on disposal of assets Sale of Winter Sports Teams On March 31, 2004, the Company closed on the sale of an 85% interest in the Turner winter sports teams (the Atlanta Thrashers The Atlanta Thrashers are a professional ice hockey team based in Atlanta, Georgia. They are members of the Southeast Division of the Eastern Conference of the National Hockey League (NHL). Their home arena is Philips Arena. , an NHL NHL Non-Hodgkin's lymphoma, see there team, and the Atlanta Atlanta (ətlăn`tə, ăt–), city (1990 pop. 394,017), state capital and seat of Fulton co., NW Ga., on the Chattahoochee R. and Peachtree Creek, near the Appalachian foothills; inc. 1847. Hawks Hawks , Howard Winchester 1896-1977. American filmmaker whose works include His Girl Friday (1940) and The Big Sleep (1946). , an NBA NBA abbr. 1. National Basketball Association 2. National Boxing Association NBA (US) n abbr (= National Basketball Association) → Basketball-Dachverband (= team) and operating rights to Philips Arena For the stadium of PSV Eindhoven, see . • • , an Atlanta sports and entertainment venue venue In law, the place or county in which the events giving rise to a legal action take place and from which a jury may be drawn to try the case. Venue statutes usually specify that a trial must take place in the district that has jurisdiction over the matter. . In addition to the $219 million impairment charge recognized in the second ($178 million) and third quarters ($41 million) of 2003, the Company recorded a $7 million pre-tax loss on the closing of the sale in the first quarter of 2004. Each of these losses were reflected as a component of operating income in the accompanying statement of operations. Sale of Publishing Building During the six months ended June 30, 2004, the Company recognized an $8 million pre-tax gain on the sale of a building located in Virginia Virginia, state, United States Virginia, state of the south-central United States. It is bordered by the Atlantic Ocean (E), North Carolina and Tennessee (S), Kentucky and West Virginia (W), and Maryland and the District of Columbia (N and NE). , which was owned by the Publishing segment. This gain is reflected as a component of operating income in the statement of operations. Sale of Interest in UK Cinemas During the second quarter of 2003, the Company recognized a $43 million pre-tax gain on the sale of its interest in UK cinemas, which had previously been consolidated by the Filmed Entertainment segment. This gain is reflected as a component of operating income in the accompanying statement of operations. Microsoft Settlement As discussed in the 2003 Form 10-K, in the second quarter of 2003, Microsoft and Time Warner announced an agreement to settle the then-pending litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. between Microsoft and Netscape (1) (Netscape Communications Corporation, Mountain View, CA, www.netscape.com) Part of America Online (AOL), Netscape specializes in Web software, including the Netscape Web browser. and to collaborate on long-term digital media initiatives that will accelerate the adoption of digital content (the "Microsoft Settlement"). As part of the settlement, Microsoft agreed to pay $750 million to Time Warner and Time Warner agreed to release Microsoft from the Netscape action and related antitrust Antitrust The antitrust laws apply to virtually all industries and to every level of business, including manufacturing, transportation, distribution, and marketing. They prohibit a variety of practices that restrain trade. claims. In addition, Microsoft agreed to a variety of noncash elements. In determining the gain recognized in connection with the Microsoft Settlement, the Company valued the fair value of all noncash elements received at approximately $10 million in addition to the cash payment of $750 million. Accordingly, the total gain recognized by Time Warner as a result of the Microsoft Settlement is approximately $760 million, which is included in "Other income (expense), net," in the Company's consolidated statement of operations for the three and six months ended June 30, 2003. Investment Gains During the three and six months ended June 30, 2004, the Company recognized $16 million and $55 million, respectively, of investment related gains. During the three months ended June 30, 2003, the Company recognized $542 million of investment related gains, including a $513 million gain from the sale of the Company's interest in Comedy Central and a $14 million gain on the sale of the Company's equity interest in an international theater chain. For the six months ended June 30, 2003, the Company recognized $651 million of investment related gains, including the Comedy Central gain previously noted, a $50 million gain from the sale of the Company's interest in Hughes Electronics Corp. ("Hughes") and gains of $49 million on the sale of the Company's equity interest in certain international theater chains. These gains are included in "Other income, net" in the accompanying consolidated statement of operations. Loss on Investments, net For the three and six months ended June 30, 2004, non-cash charges Non-Cash Charge A charge off, made by a company against earnings, that does not require an initial outlay of cash. Notes: Non-cash charges are typically against the depreciation, amortization, and depletion accounts on a company's balance sheet. to reflect other-than-temporary declines in the Company's investments were $6 million and $9 million, respectively. This amount reflects $1 million and $2 million, respectively, to reduce the carrying value Carrying Value Also know as "book value," it is a company's total assets minus intangible assets and liabilities, such as debt. Notes: This is different than market value, as it can be higher or lower depending on the circumstances. of certain investments that experienced other-than-temporary declines in market value and $5 million and $7 million of losses, respectively, related to market fluctuations in equity derivative In finance, an equity derivative is a class of financial instruments whose value is at least partly derived from one or more underlying equity securities. Market participants trade equity derivatives in order to transfer or transform certain risks associated with the instruments. For the three and six months ended June 30, 2003, non-cash charges to reflect other-than-temporary declines in the Company's investments were $151 million and $157 million, respectively. These amounts were comprised of $160 million and $170 million, respectively, to reduce the carrying value of certain investments that experienced other-than-temporary declines in market value offset by income of $9 million and $13 million, respectively, to reflect market fluctuations in equity derivative instruments. Included in the second quarter 2003 charge was a writedown writedown A reduction in the value of an asset carried on a firm's financial statements. For example, the firm's accountants, believing the inventory is overvalued, may decide to take a writedown by reducing inventory valuation. of $77 million of the Company's equity interest in AOL Japan and a $71 million writedown of the Company's equity interest in NTV-Germany. These write-downs are included in "Other income, net" in the accompanying consolidated statement of operations. Note 4: Intersegment Transactions In the normal course of business, the Time Warner segments enter into transactions with one another. The most common types of intercompany transactions Intercompany transaction Transaction carried out between two units of the same corporation. include: --The Filmed Entertainment segment generating content revenue by licensing television and theatrical programming to the Networks segment; --The Networks segment generating subscription revenues by selling cable network programming to the Cable segment; --The Cable segment recognizes Subscription revenue by offering the AOL service to its subscribers; --The AOL, Cable, Networks and Publishing segments generating advertising revenue by cross-promoting the products and services of all Time Warner segments; and --The AOL segment generating Other revenue by providing the Cable segment's customers access to the AOL Transit Data Network (ATDN ATDN AOL Transit Data Network ATDN Any Time Day or Night ATDN Advanced Technology Demonstration Network (Darpa) ATDN Amazon Tree Diversity Network ) for high-speed access to the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the . These intersegment transactions are recorded by each segment at fair value as if the transactions were with third parties and, therefore, impact segment performance. While intersegment transactions are treated like third-party transactions to determine segment performance, the revenues (and corresponding expenses recognized by the segment that is counterparty Counterparty The other participant, including intermediaries, in a swap or contract. to the transaction) are eliminated in consolidation and, therefore, do not themselves impact consolidated results. Additionally, transactions between divisions within the same reporting segment (e.g., a transaction between HBO and Turner) are eliminated in arriving at segment performance and therefore do not themselves impact segment results. Revenues recognized by Time Warner's segments on intersegment transactions are as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2004 2003 2004 2003
------ ------ ------ ------
(millions)
Intersegment Revenues
AOL $ 15 $ 18 $ 30 $ 68
Cable 12 19 26 35
Filmed Entertainment 146 263 334 437
Networks 152 147 295 299
Publishing 20 19 38 38
------ ------ ------ ------
Total intersegment revenues $ 345 $ 466 $ 723 $ 877
====== ====== ====== ======
Note 5: Sale of Music Segment With the closing of the WMG WMG Warner Music Group WMG Wireless Messaging Gateway WMG Williams Media Group WMG Where's My Glasses? WMG Woah My God WMG Wireless Marketing Group WMG Wisconsin Musical Groups WMG Windows Metafile Graphics WMG Wireless Media Gateway recorded music and music publishing transaction in the first quarter of 2004, the Company has disposed of its music operations. Accordingly, the Company has presented the results of operations and financial condition of the Music segment as discontinued operations for all periods presented. Financial data of the Music operations, included in discontinued operations for the three and six months ended June 30, 2004 and 2003, is as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2004 2003 2004 2003
------- ------ ------ -------
(millions)
Total revenues $ - $ 900 $ 780 $1,665
Pre-tax income (loss) (93) 2 (16) (48)
Income tax (expense) benefit (12) 1 126 17
Net income (loss) (105) 3 110 (31)
The second quarter 2004 amounts primarily relate to the changes in estimates of the net assets Net assets The difference between total assets on the one hand and current liabilities and noncapitalized long-term liabilities on the other hand. net assets See owners' equity. sold and the resolution of certain contractual matters associated with the sale of WMG. As of June 30, 2004, there are $34 million of assets and $128 million of liabilities associated with the former music operations. The liabilities are principally related to severance The act of dividing, or the state of being divided. The term severance has unique meanings in different branches of the law. Courts use the term in both civil and criminal litigation in two ways: first, when dividing a lawsuit into two or more parts, and second, when and pension obligations to former employees of the Music segment, which were retained by Time Warner. All of the assets and a majority of the liabilities are expected to be collected or paid in the next twelve months. Note 6: Cable Capital Expenditures and Subscriber Statistics Capital Expenditures The Cable segment's capital expenditures from continuing operations are comprised of the following categories:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2004 2003 2004 2003
------ ------ ------ ------
(millions)
Customer premise equipment $ 182 $ 193 $ 348 $ 371
Scaleable infrastructure 42 41 66 66
Line extensions 59 50 105 89
Upgrade/rebuild 33 60 54 98
Support capital 83 83 145 149
------ ------ ------ ------
Total capital expenditures $ 399 $ 427 $ 718 $ 773
====== ====== ====== ======
Cable Subscriber Statistics At the Time Warner Cable segment, total customer relationships, representing the number of customers that receive at least one level of service, increased by 0.8% to 11.441 million as of June 30, 2004 compared to 11.348 million as of June 30, 2003 and revenue generating units, representing the total of all analog video The original video recording method that stores continuous waves of red, green and blue intensities. In analog video, the number of rows is fixed. There are no real columns, and the maximum detail is determined by the frequency response of the analog system. , digital video, high-speed data and telephony Meaning "sound over distance," it refers to electronically transmitting the human voice. In the beginning, telephony dealt only with analog signals in the circuit-switched networks of the telephone companies. customers, increased by 7.1% to 19.258 million as of June 30, 2004 compared to 17.985 million as of June 30, 2003. The Company's subscriber amounts include all subscribers at both consolidated entities and investees accounted for under the equity method of accounting that are managed by the Company. Note 7: AOL Related Expenses Marketing Expenses During the second quarter of 2004, the Company recorded an approximate $25 million adjustment to reduce excess marketing accruals made in prior years. This adjustment was primarily related to AOL's European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. operations. This adjustment was reflected as a reduction of second quarter marketing expenses recorded in "selling, general and administrative" expenses in the accompanying consolidated statement of operations. Management does not believe that the understatement of prior years' results was material to any prior year's financial statements. Similarly, management does not believe that the adjustment made is material to current period results. Internet Sales Taxes sales tax, levy on the sale of goods or services, generally calculated as a percentage of the selling price, and sometimes called a purchase tax. It is usually collected in the form of an extra charge by the retailer, who remits the tax to the government. AOL's three and six month results for 2004 were impacted by the provision of certain state sales tax reserves related to the November November: see month. 2003 expiration EXPIRATION. Cessation; end. As, the expiration of, a lease, of a contract, or statute. 2. In general, the expiration of a contract puts an end to all the engagements of the parties, except to those which arise from the non- fulfillment of obligations created of the federal moratorium A suspension of activity or an authorized period of delay or waiting. A moratorium is sometimes agreed upon by the interested parties, or it may be authorized or imposed by operation of law. on Internet sales taxes. Both the U.S. Senate and U.S. House of Representatives have passed legislation that would retroactively ret·ro·ac·tive adj. Influencing or applying to a period prior to enactment: a retroactive pay increase. [French rétroactif, from Latin reinstate To restore to a condition that has terminated or been lost; to reestablish. To reinstate a case, for example, means to restore it to the same position it had before dismissal. the federal moratorium on Internet sales taxes. As of June 30, 2004, AOL has accrued a $40 million liability for such sales taxes. Depending upon the legislation ultimately passed, if any, all or some portion of this accrued liability may be reversed, positively impacting AOL's future results of operations. However, until such legislation is passed, AOL continues to accrue To increase; to augment; to come to by way of increase; to be added as an increase, profit, or damage. Acquired; falling due; made or executed; matured; occurred; received; vested; was created; was incurred. for such sales taxes. |
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