Time Warner Inc. Reports Second-Quarter 2014 Results

  Time Warner Inc. Reports Second-Quarter 2014 Results

Second-Quarter Highlights

  *Completed spin-off of Time Inc. on June 6, 2014
  *Revenues grew 3% to $6.8 billion
  *Adjusted Operating Income increased 17% to $1.6 billion
  *Adjusted EPS rose 29% to $0.98
  *Free Cash Flow increased 16% to $2.0 billion in the first half of 2014
  *Board authorized an additional $5 billion of share repurchases
  *Company repurchased 51 million shares for $3.5 billion year-to-date
    through August 1, 2014

Business Wire

NEW YORK -- August 6, 2014

Time Warner Inc. (NYSE:TWX) today reported financial results for its second
quarter ended June 30, 2014.

Chairman and Chief Executive Officer Jeff Bewkes said: “We had another strong
quarter, reflecting the strength of our businesses and our potential for
continued growth as we deliver on our strategic plan to be the world’s leading
video content company. Adjusted Operating Income increased 17%, while Adjusted
EPS rose 29%, and over the first half of the year we generated $2 billion of
Free Cash Flow, up 16% year-over-year. We achieved these results in a
milestone quarter during which we spun off Time Inc. as an independent,
publicly-traded company, further unlocking value for our shareholders and
giving Time Warner even more operational focus. Our commitment to invest in
great storytelling was evident across the Company. With hits like Game of
Thrones, True Detective and Silicon Valley, HBO once again led the industry
with 99 Primetime Emmy nominations, more than double its nearest competitor
for the second straight year and the most nominations for the fourteenth year
in a row. At Turner, TNT debuted the two most-watched new series on
ad-supported cable this year with The Last Ship and Murder in the First and
ranked as ad-supported cable’s #1 primetime network among total viewers and
adults 18-34, 18-49 and 25-54 in the second quarter. Turner’s other networks
also continued to lead the industry, and in the second quarter TBS finished as
the #3 ad-supported cable network in primetime among adults 18-49 and Adult
Swim ended as ad-supported cable’s #1 network in total day among adults 18-34
and 18-49. Heading into the 2014-2015 television season, Warner Bros. is the
#1 producer of shows for broadcast networks for the 11^th time in the past 12
seasons. Starting this fall, Warner Bros. will have 31 shows on broadcast
networks, including at least two primetime series on each network, and 60
shows across broadcast and cable. And in film, Warner Bros. benefited in the
quarter from the home video releases of the second Hobbit installment and The
LEGO Movie, which, in addition to being one of the year’s biggest box office
hits, has also become a franchise property for the studio. Further
demonstrating our commitment to shareholder returns, so far this year we’ve
returned over $4 billion to our shareholders in the form of share buybacks and
dividends, and our board in June approved an additional $5 billion of share
repurchases.”

Company Results^1

Revenues increased 3% to $6.8 billion in the second quarter of 2014 due to
growth at Home Box Office and Turner. Adjusted Operating Income grew 17% to
$1.6 billion due to increases at Turner, Home Box Office and Warner Bros.
Operating Income increased 13% to $1.6 billion. Adjusted Operating Income and
Operating Income margins were 24% and 23% in the second quarter of 2014,
respectively, compared to 21% for each in the prior year quarter.

In the second quarter, the Company posted Adjusted Diluted Income per Common
Share from Continuing Operations (“Adjusted EPS”) of $0.98  versus $0.76 for
the year-ago quarter. Diluted Income per Common Share from Continuing
Operations was $0.94 for the three months ended June 30, 2014 compared to
$0.73 for last year’s second quarter.

For the first six months of 2014, Cash Provided by Operations from Continuing
Operations reached $2.1 billion and Free Cash Flow totaled $2.0 billion. As of
June 30, 2014, Net Debt was $18.1 billion, down from $18.3 billion at the end
of 2013, due to the generation of Free Cash Flow, cash received from Time Inc.
in connection with the spin-off and proceeds from the sale of the Company’s
space in Time Warner Center, offset in part by cash used for share repurchases
and dividends.

Refer to “Use of Non-GAAP Financial Measures” in this release for a discussion
of the non-GAAP financial measures used in this release and the
reconciliations of the non-GAAP financial measures to the most directly
comparable GAAP financial measures.

^1 On June 6, 2014, the Company completed the legal and structural separation
of Time Inc. from the Company. Accordingly, the Company has recast its
financial information to present the financial condition and results of
operations of its former Time Inc. segment as discontinued operations for all
periods presented.

Stock Repurchase Program Update

From January 1, 2014 through August 1, 2014, the Company repurchased
approximately 51 million shares of common stock for approximately $3.5
billion. These amounts reflect the purchase of 32 million shares of common
stock for $2.3 billion since the amounts reported in the Company’s first
quarter earnings release on April 30, 2014.

In June 2014, the Company’s Board of Directors authorized an additional $5
billion of share repurchases. At August 1, 2014, $6.5 billion remained
available for repurchases.

Segment Performance

The schedule below reflects Time Warner’s financial performance for the three
and six months ended June 30, by line of business (millions).

                                                
                      Three Months Ended June 30,     Six Months Ended June
                                                      30,
                      2014          2013             2014       2013
                                     (recast)^(a)                 (recast)^(a)
Revenues:                                                        
Turner                $   2,750      $    2,627       $  5,343    $   5,097
Home Box Office           1,417           1,216          2,756        2,444
Warner Bros.              2,870           2,941          5,936        5,622
Intersegment              (249)           (176)          (444)        (348)
eliminations
Total Revenues        $   6,788      $    6,608       $  13,591   $   12,815
                                                                      
Adjusted
Operating
Income (Loss)
^(b):
Turner                $   940        $    815         $  1,835    $   1,686
Home Box Office           552             450            1,016        867
Warner Bros.              236             184            616          449
Corporate                 (103)           (78)           (222)        (194)
Intersegment              (7)             17             (1)          29
eliminations
Total Adjusted
Operating             $   1,618      $    1,388       $  3,244    $   2,837
Income
                                                                      
Operating
Income (Loss)
^(b):
Turner                $   929        $    815         $  1,829    $   1,666
Home Box Office           548             459            1,012        876
Warner Bros.              234             181            603          444
Corporate ^(c)            (137)           (85)           172          (209)
Intersegment              (7)             17             (1)          29
eliminations
Total Operating       $   1,567      $    1,387       $  3,615    $   2,806
Income
                                                                      
Depreciation
and
Amortization:
Turner                $   56         $    63          $  114      $   126
Home Box Office           22              23             47           45
Warner Bros.              100             94             193          187
Corporate                 7               8              14           15
Total
Depreciation          $   185        $    188         $  368      $   373
and
Amortization
                                                                      

      The 2013 financial information has been recast so the basis of
(a)  presentation is consistent with that of the 2014 financial information.
      Refer to Note 1, “Description of Business and Basis of Presentation.”
      Adjusted Operating Income (Loss) and Operating Income (Loss) for the
(b)   three and six months ended June 30, 2014 and 2013 included restructuring
      and severance costs of (millions):

                       Three Months Ended      Six Months Ended June
                                June 30,                  30,
                                2014    2013             2014    2013
                                         (recast)^(a)              (recast)^(a)
                                                                   
            Turner              $ (12)   $    (20)        $ (24)   $    (34)
            Home Box              (1)         (4)           (9)         (12)
            Office
            Warner Bros.          (3)         (28)          (5)         (31)
            Corporate             (1)         3             (5)         1
            Total
            Restructuring       $ (17)   $    (49)        $ (43)   $    (76)
            and Severance
            Costs
                                                                        

      Operating Income (Loss) for the six months ended June 30, 2014 included
(c)  a $441 million gain in connection with the sale of the Company’s space
      in Time Warner Center.
      

Presented below is a discussion of the performance of Time Warner’s segments
for the second quarter of 2014. Unless otherwise noted, the dollar amounts in
parentheses represent year-over-year changes.

TURNER

Revenues rose 5% ($123 million) to $2.8 billion, mainly due to growth of 8%
($99 million) in Subscription revenues and 1% ($13 million) in Advertising
revenues. The increase in Subscription revenues was primarily due to higher
domestic rates and international growth, partially offset by the negative
effect of foreign currency exchange rates. Advertising revenues increased due
to growth at Turner’s domestic and international networks, partially offset by
the negative effect of foreign currency exchange rates. Domestic advertising
revenues benefited from the airing of two 2014 NCAA Division I Men’s
Basketball Championship tournament (the “NCAA Tournament”) semifinal games and
higher pricing, partially offset by lower audience delivery and demand.

Adjusted Operating Income increased 15% ($125 million) to $940 million due to
higher revenues. Expenses were flat in the quarter as higher programming costs
were offset by lower marketing expenses and the reversal of an accrued
contingency. Programming costs grew 5% primarily due to higher costs related
to the NCAA Tournament.

Operating Income increased 14% ($114 million) to $929 million.

TNT ranked as ad-supported cable’s #1 primetime network among total viewers
and adults 18-34, 18-49 and 25-54 in the second quarter and The Last Ship and
Murder in the First are the two most-watched new series on ad-supported cable
year-to-date. TBS was the #3 ad-supported cable network in primetime among
adults 18-49 and 25-54, and The Big Bang Theory remained the #1 comedy on
ad-supported cable among total viewers and adults 18-49 for the 10^th
consecutive quarter. Adult Swim was ad-supported cable’s #1 total day network
among adults 18-24, 18-34 and 18-49, and it ranked #1 among adults 18-34 for
the 25^th consecutive quarter.

HOME BOX OFFICE

Revenues grew 17% ($201 million) to $1.4 billion, reflecting increases of 10%
($101 million) in Subscription revenues and 56% ($98 million) in Content
revenues. Subscription revenues increased mainly from higher domestic rates
and the consolidation of HBO Asia and HBO South Asia (collectively, “HBO
Asia”) and HBO Nordic. The increase in Content revenues was primarily due to
the licensing of select original programming to Amazon Prime Instant Video.

Adjusted Operating Income rose 23% ($102 million) to $552 million, reflecting
higher revenues, partially offset by increased expenses due to higher
programming costs as well as the comparison against the prior year’s quarter,
which benefited from a $31 million adjustment to a receivable allowance.
Programming costs grew 11% due to increased original programming expenses as
well as the consolidation of HBO Asia and HBO Nordic.

Operating Income increased 19% ($89 million) to $548 million. The prior year
quarter included a gain as a result of Home Box Office’s  acquisition of its
former partner’s interest in HBO Nordic.

HBO received 99 Primetime Emmy nominations in July, the most for any network
for the fourteenth year in a row and more than double the nominations of the
closest competitor for the second consecutive year. Nominations included
Outstanding Drama Series for Game of Thrones and True Detective, Outstanding
Comedy Series for Silicon Valley and VEEP and Outstanding Television Movie for
Muhammad Ali’s Greatest Fight and The Normal Heart. The fourth season of Game
of Thrones, which concluded in June, averaged a gross audience of 19.0 million
viewers making it the most watched season of an original series in HBO’s
history, surpassing the most watched season of The Sopranos in 2002.

WARNER BROS.

Revenues decreased 2% ($71 million) to $2.9 billion, mainly due to softer
theatrical performance in the current year quarter compared to the prior
year’s theatrical slate, which included Man of Steel, The Hangover Part III
and The Great Gatsby. The decline was partially offset by an increase in home
entertainment revenues due to the timing of the release of The Hobbit: The
Desolation of Smaug, the strong performance of The LEGO Movie and continued
growth in electronic sell-through, as well as growth in license fees from
television production.

Adjusted Operating Income increased 28% ($52 million) to $236 million as
contributions from home entertainment and television, as well as lower
restructuring costs and reversals of bad debt reserves, more than offset the
impact of softer theatrical performances.

Operating Income grew 29% ($53 million) to $234 million.

Heading into the 2014-2015 television season, Warner Bros. Television Group is
once again the #1 producer of shows for the broadcast networks, a position it
has held for 11 of the past 12 seasons. Warner Bros. Television Group will
have 31 shows on broadcast networks, including at least two primetime series
on each network, and 60 shows across broadcast and cable. In June, Warner
Bros. Television Group acquired Eyeworks Group’s operations outside of the
U.S., increasing its international production capabilities.

CONSOLIDATED NET INCOME AND PER SHARE RESULTS

Company Results

Adjusted EPS was $0.98  for the three months ended June 30, 2014, compared to
$0.76 in last year’s second quarter. The increase in Adjusted EPS primarily
reflects higher Adjusted Operating Income and fewer shares outstanding.

For the three months ended June 30, 2014, the Company had Income from
Continuing Operations attributable to Time Warner common shareholders of $843 
million, or $0.94  per diluted common share. This compares to Income from
Continuing Operations attributable to Time Warner common shareholders in the
second quarter of 2013 of  $698 million, or $0.73  per diluted common share.

For the second quarter of 2014 and 2013, the Company had Net Income of  $850 
million and  $771 million, respectively.

USE OF NON-GAAP FINANCIAL MEASURES

The Company utilizes Adjusted Operating Income (Loss) and Adjusted Operating
Income margin, among other measures, to evaluate the performance of its
businesses. Adjusted Operating Income (Loss) is Operating Income (Loss)
excluding the impact of noncash impairments of goodwill, intangible and fixed
assets; gains and losses on operating assets (other than deferred gains on
sale-leasebacks); gains and losses recognized in connection with pension and
other postretirement benefit plan curtailments or settlements; external costs
related to mergers, acquisitions or dispositions, as well as contingent
consideration related to such transactions, to the extent such costs are
expensed; and amounts related to securities litigation and government
investigations. Adjusted Operating Income margin is defined as Adjusted
Operating Income divided by Revenues. These measures are considered important
indicators of the operational strength of the Company’s businesses.

Adjusted Income from Continuing Operations attributable to Time Warner Inc.
common shareholders is Income from Continuing Operations attributable to Time
Warner Inc. common shareholders excluding noncash impairments of goodwill,
intangible and fixed assets and investments; gains and losses on operating
assets (other than deferred gains on sale-leasebacks), liabilities and
investments; gains and losses recognized in connection with pension and other
postretirement benefit plan curtailments or settlements; external costs
related to mergers, acquisitions, investments or dispositions, as well as
contingent consideration related to such transactions, to the extent such
costs are expensed; amounts related to securities litigation and government
investigations; and amounts attributable to businesses classified as
discontinued operations; as well as the impact of taxes and noncontrolling
interests on the above items and the Company’s share of the above items with
respect to equity method investments. Similarly, Adjusted EPS is Diluted
Income per Common Share from Continuing Operations attributable to Time Warner
Inc. common shareholders excluding the above items.

Adjusted Income from Continuing Operations attributable to Time Warner Inc.
common shareholders and Adjusted EPS are considered important indicators of
the operational strength of the Company’s businesses as these measures
eliminate amounts that do not reflect the fundamental performance of the
Company’s businesses. The Company utilizes Adjusted EPS, among other measures,
to evaluate the performance of its businesses both on an absolute basis and
relative to its peers and the broader market. Many investors also use an
adjusted EPS measure as a common basis for comparing the performance of
different companies. Some limitations of Adjusted Operating Income (Loss),
Adjusted Operating Income margin, Adjusted Income from Continuing Operations
attributable to Time Warner Inc. common shareholders and Adjusted EPS are that
they do not reflect certain charges that affect the operating results of the
Company’s businesses and they involve judgment as to whether items affect
fundamental operating performance.

Free Cash Flow is defined as Cash Provided by Operations from Continuing
Operations plus payments related to securities litigation and government
investigations (net of any insurance recoveries), external costs related to
mergers, acquisitions, investments or dispositions, to the extent such costs
are expensed, contingent consideration payments made in connection with
acquisitions, and excess tax benefits from equity instruments, less capital
expenditures, principal payments on capital leases and partnership
distributions, if any. The Company uses Free Cash Flow to evaluate its
businesses and this measure is considered an important indicator of the
Company’s liquidity, including its ability to reduce net debt, make strategic
investments, pay dividends to common shareholders and repurchase stock.

A general limitation of these measures is that they are not prepared in
accordance with U.S. generally accepted accounting principles and may not be
comparable to similarly titled measures of other companies due to differences
in methods of calculation and excluded items. Adjusted Operating Income
(Loss), Adjusted Income from Continuing Operations attributable to Time Warner
Inc. common shareholders, Adjusted EPS and Free Cash Flow should be considered
in addition to, not as a substitute for, the Company’s Operating Income
(Loss), Income from Continuing Operations attributable to Time Warner Inc.
common shareholders, Diluted Income per Common Share from Continuing
Operations and various cash flow measures (e.g., Cash Provided by Operations
from Continuing Operations), as well as other measures of financial
performance and liquidity reported in accordance with U.S. generally accepted
accounting principles.

ABOUT TIME WARNER INC.

Time Warner Inc., a global leader in media and entertainment with businesses
in television networks and film and TV entertainment, uses its
industry-leading operating scale and brands to create, package and deliver
high-quality content worldwide on a multi-platform basis.

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS

This document contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. These statements are based
on management’s current expectations or beliefs, and are subject to
uncertainty and changes in circumstances. Actual results may vary materially
from those expressed or implied by the statements herein due to changes in
economic, business, competitive, technological, strategic and/or regulatory
factors and other factors affecting the operation of Time Warner’s businesses.
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 and subsequent Quarterly Reports on Form 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.

INFORMATION ON BUSINESS OUTLOOK RELEASE & CONFERENCE CALL

Time Warner Inc. issued a separate release today regarding its 2014 full-year
business outlook.

The Company’s conference call can be heard live at 10:30 am ET on Wednesday,
August 6, 2014. To listen to the call, visit www.timewarner.com/investors.


TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited; millions, except share amounts)

                                                    June 30,  December 31,
                                                      2014       2013
                                                                    (recast)
ASSETS
Current assets
Cash and equivalents                                 $ 4,480      $  1,816
Receivables, less allowances of $1,009 and             7,014         7,305
$1,383
Inventories                                            1,654         1,648
Deferred income taxes                                  424           369
Prepaid expenses and other current assets              611           559
Current assets of discontinued operations             -            834
Total current assets                                   14,183        12,531
                                                                     
Noncurrent inventories and theatrical film and         6,549         7,016
television production costs
Investments, including available-for-sale              2,494         2,009
securities
Property, plant and equipment, net                     2,716         3,291
Intangible assets subject to amortization, net         1,278         1,338
Intangible assets not subject to amortization          7,037         7,043
Goodwill                                               27,599        27,401
Other assets                                           2,634         2,458
Noncurrent assets of discontinued operations          -            4,912
Total assets                                         $ 64,490     $  67,999
                                                                     
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and accrued liabilities             $ 6,564      $  6,754
Deferred revenue                                       475           542
Debt due within one year                               168           66
Current liabilities of discontinued operations        -            1,026
Total current liabilities                              7,207         8,388
                                                                     
Long-term debt                                         22,395        20,061
Deferred income taxes                                  2,037         2,287
Deferred revenue                                       335           351
Other noncurrent liabilities                           6,609         6,324
Noncurrent liabilities of discontinued                 -             684
operations
                                                                     
Equity
Common stock, $0.01 par value, 1.652 billion
and 1.652 billion shares
issued and 858 million and 895 million shares          17            17
outstanding
Additional paid-in capital                             149,820       153,410
Treasury stock, at cost (794 million and 757           (40,227)      (37,630)
million shares)
Accumulated other comprehensive loss, net              (804)         (852)
Accumulated deficit                                   (82,899)     (85,041)
Total Time Warner Inc. shareholders’ equity            25,907        29,904
Noncontrolling interests                              -            -
Total equity                                          25,907       29,904
Total liabilities and equity                         $ 64,490     $  67,999


TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited; millions, except per share amounts)

                              Three Months Ended     Six Months Ended
                                 6/30/14    6/30/13     6/30/14    6/30/13
                                             (recast)                (recast)
                                                                     
Revenues                         $ 6,788     $ 6,608     $ 13,591    $ 12,815
Costs of revenues                  (3,925)     (3,908)     (7,776)     (7,350)
Selling, general and               (1,217)     (1,219)     (2,487)     (2,469)
administrative
Amortization of intangible         (50)        (51)        (100)       (101)
assets
Restructuring and                  (17)        (49)        (43)        (76)
severance costs
Asset impairments                  (14)        (3)         (26)        (30)
Gain on operating assets,         2          9          456        17
net
Operating income                   1,567       1,387       3,615       2,806
Interest expense, net              (296)       (300)       (561)       (589)
Other income (loss), net          6          (56)       (5)        (40)
                                                                       
Income from continuing
operations before
income taxes                       1,277       1,031       3,049       2,177
Income tax provision              (434)      (333)      (841)      (715)
Income from continuing             843         698         2,208       1,462
operations
Discontinued operations,          7          73         (66)       63
net of tax
Net income                         850         771         2,142       1,525
Less Net loss attributable
to
noncontrolling interests          -          -          -          -
Net income attributable to
Time Warner Inc.
shareholders                     $ 850       $ 771       $ 2,142     $ 1,525
                                                                       
Per share information
attributable to
Time Warner Inc. common
shareholders:
Basic income per common
share from
continuing operations            $ 0.96      $ 0.75      $ 2.49      $ 1.56
Discontinued operations           0.01       0.08       (0.07)     0.07
Basic net income per             $ 0.97      $ 0.83      $ 2.42      $ 1.63
common share
Average basic common              874.8      928.6      882.9      930.7
shares outstanding
                                                                       
Diluted income per common
share from
continuing operations            $ 0.94      $ 0.73      $ 2.45      $ 1.53
Discontinued operations           0.01       0.08       (0.08)     0.07
Diluted net income per           $ 0.95      $ 0.81      $ 2.37      $ 1.60
common share
Average diluted common            894.2      950.8      902.4      953.6
shares outstanding
                                                                       
Cash dividends declared
per share of
common stock                     $ 0.3175    $ 0.2875    $ 0.6350    $ 0.5750
                                                                       


TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30,
(Unaudited; millions)

                                                      2014       2013
                                                                     (recast)
OPERATIONS
Net income                                              $ 2,142     $ 1,525
Less Discontinued operations, net of tax                 66         (63)
Net income from continuing operations                     2,208       1,462
Adjustments for noncash and nonoperating items:
Depreciation and amortization                             368         373
Amortization of film and television costs                 3,913       3,771
Asset impairments                                         26          30
Gain on investments and other assets, net                 (477)       (64)
Equity in losses of investee companies, net of            54          125
cash distributions
Equity-based compensation                                 126         140
Deferred income taxes                                     (312)       448
Changes in operating assets and liabilities, net         (3,849)    (4,760)
of acquisitions
Cash provided by operations from continuing              2,057      1,525
operations
                                                                      
INVESTING ACTIVITIES
Investments in available-for-sale securities              (28)        (22)
Investments and acquisitions, net of cash                 (861)       (417)
acquired
Capital expenditures                                      (206)       (172)
Investment proceeds from available-for-sale               16          33
securities
Proceeds from Time Inc. in the Time Separation            1,400       -
Proceeds from the sale of Time Warner Center              1,264       -
Other investment proceeds                                122        152
Cash provided (used) by investing activities from        1,707      (426)
continuing operations
                                                                      
FINANCING ACTIVITIES
Borrowings                                                2,401       14
Debt repayments                                           (15)        (446)
Proceeds from exercise of stock options                   182         489
Excess tax benefit from equity instruments                95          130
Principal payments on capital leases                      (5)         (4)
Repurchases of common stock                               (2,876)     (1,522)
Dividends paid                                            (568)       (544)
Other financing activities                               (125)      (99)
Cash used by financing activities from continuing        (911)      (1,982)
operations
Cash provided (used) by continuing operations            2,853      (883)
                                                                      
Cash provided (used) by operations from                   (15)        119
discontinued operations
Cash used by investing activities from                    (51)        (14)
discontinued operations
Cash used by financing activities from                    (36)        -
discontinued operations
Effect of change in cash and equivalents of              (87)       12
discontinued operations
Cash provided (used) by discontinued operations          (189)      117
INCREASE (DECREASE) IN CASH AND EQUIVALENTS               2,664       (766)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD              1,816      2,760
CASH AND EQUIVALENTS AT END OF PERIOD                   $ 4,480     $ 1,994
                                                                      


TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; dollars in millions)

Reconciliations of
Adjusted Operating Income (Loss) to Operating Income (Loss) and
Adjusted Operating Income Margin to Operating Income Margin

Three Months Ended June 30, 2014
                                                             
                    Adjusted                  Gain
                    Operating   Asset         (Loss) on              Operating
                    Income      Impairments   Operating   Other      Income
                    (Loss)                    Assets,                (Loss)
                                              Net
Turner              $  940      $   (10)      $   2       $ (3)      $  929
Home Box               552          (4)           -         -           548
Office
Warner Bros.           236          -             -         (2)         234
Corporate              (103)        -             -         (34)        (137)
Intersegment          (7)         -            -        -          (7)
eliminations
Time Warner         $  1,618    $   (14)      $   2       $ (39)     $  1,567
                                                                        
Margin^(a)             23.8%        (0.2%)        -         (0.5%)      23.1%
                                                                        
                                                                        
Three Months Ended June 30, 2013 (recast)
                                                                        
                    Adjusted                  Gain
                    Operating   Asset         (Loss) on              Operating
                    Income      Impairments   Operating   Other      Income
                    (Loss)                    Assets,                (Loss)
                                              Net
Turner              $  815      $   -         $   -       $ -        $  815
Home Box               450          -             9         -           459
Office
Warner Bros.           184          (3)           -         -           181
Corporate              (78)         -             -         (7)         (85)
Intersegment          17          -            -        -          17
eliminations
Time Warner         $  1,388    $   (3)       $   9       $ (7)      $  1,387
                                                                        
Margin^(a)             21.0%        -             0.1%      (0.1%)      21.0%
                                                                        

Please see below for additional information on items affecting comparability.

       Adjusted Operating Income margin is defined as Adjusted Operating
^(a)  Income divided by Revenues. Operating Income margin is defined as
       Operating Income divided by Revenues.
       

Six Months Ended June 30, 2014
                                                             
                    Adjusted                  Gain
                    Operating   Asset         (Loss) on              Operating
                    Income      Impairments   Operating   Other      Income
                    (Loss)                    Assets,                (Loss)
                                              Net
Turner              $  1,835    $   (11)      $   15      $ (10)     $  1,829
Home Box               1,016        (4)           -         -           1,012
Office
Warner Bros.           616          (5)           -         (8)         603
Corporate              (222)        (6)           441       (41)        172
Intersegment          (1)         -            -        -          (1)
eliminations
Time Warner         $  3,244    $   (26)      $   456     $ (59)     $  3,615
                                                                        
Margin^(a)             23.9%        (0.2%)        3.4%      (0.5%)      26.6%
                                                                        
Six Months Ended June 30, 2013 (recast)
                                                                        
                    Adjusted                  Gain
                    Operating   Asset         (Loss) on              Operating
                    Income      Impairments   Operating   Other      Income
                    (Loss)                    Assets,                (Loss)
                                              Net
Turner              $  1,686    $   (18)      $   -       $ (2)      $  1,666
Home Box               867          -             9         -           876
Office
Warner Bros.           449          (5)           -         -           444
Corporate              (194)        (7)           8         (16)        (209)
Intersegment          29          -            -        -          29
eliminations
Time Warner         $  2,837    $   (30)      $   17      $ (18)     $  2,806
                                                                        
Margin^(a)             22.1%        (0.2%)        0.1%      (0.1%)      21.9%


Please see below for additional information on items affecting comparability.

       Adjusted Operating Income Margin is defined as Adjusted Operating
^(a)  Income divided by Revenues. Operating Income Margin is defined as
       Operating Income divided by Revenues.
       


TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions, except per share amounts)

Reconciliations of
Adjusted Income from Continuing Operations attributable to Time Warner Inc.
common shareholders to
Income from Continuing Operations attributable to Time Warner Inc. common
shareholders and
Adjusted EPS to Diluted Income per Common Share from Continuing Operations
attributable to Time Warner
Inc. common shareholders.

                               Three Months Ended       Six Months Ended
                                  6/30/14      6/30/13     6/30/14  6/30/13
                                                (recast)              (recast)
                                                                         
Asset impairments                 $  (14)       $  (3)      $ (26)    $  (30)
Gain on operating                    2             9          456        17
assets, net
Other                               (39)         (7)       (59)      (18)
Impact on Operating                  (51)          (1)        371        (31)
Income
                                                                         
Investment gains                     26            (16)       21         55
(losses), net
Amounts related to the
separation of Time
Warner Cable Inc.                    -             1          (1)        6
Amounts related to the
disposition of
Warner Music Group                   -             1          (1)        -
Items affecting
comparability relating
to
equity method                       (20)         (12)      (20)      (12)
investments
Pretax impact                        (45)          (27)       370        18
Income tax impact of                12           5         77        (17)
above items
Impact of items
affecting comparability
on
income from continuing
operations attributable
to Time Warner Inc.               $  (33)       $  (22)     $ 447     $  1
shareholders
                                                                         
Amounts attributable to
Time Warner Inc.
shareholders:
Income from continuing            $  843        $  698      $ 2,208   $  1,462
operations
Less Impact of items
affecting comparability
on net income                       (33)         (22)      447       1
Adjusted income from              $  876        $  720      $ 1,761   $  1,461
continuing operations
                                                                         
Per share information
attributable to Time
Warner Inc. common
shareholders:
Diluted income per
common share from
continuing operations             $  0.94       $  0.73     $ 2.45    $  1.53
Less Impact of items
affecting comparability
on
diluted net income per              (0.04)       (0.03)    0.50      -
common share
Adjusted EPS                      $  0.98       $  0.76     $ 1.95    $  1.53
Average diluted common              894.2        950.8     902.4     953.6
shares outstanding
                                                                         

Asset Impairments

During the three months ended June 30, 2014, the Company recognized asset
impairments of $10 million at the Turner segment related to various
miscellaneous assets and $4 million at the Home Box Office segment related to
the noncash impairment of an international tradename. For the six months ended
June 30, 2014, the Company recognized additional asset impairments of $1
million at the Turner segment related to miscellaneous assets and $5 million
and $6 million at the Warner Bros. segment and Corporate, respectively,
related to certain internally developed software.

During the three months ended June30, 2013, the Company recognized
miscellaneous asset impairments of $3million at the Warner Bros. segment.
During the six months ended June30, 2013, the Company recognized asset
impairments of $18million at the Turner segment consisting of $12million
related to certain international intangible assets and $6million related to
programming assets resulting from Turner’s decision in the first quarter of
2013 to shut down certain of its entertainment networks in Spain, $5million
at the Warner Bros. segment related to miscellaneous assets and $7million at
Corporate related to certain internally developed software.

Gain on Operating Assets, Net

For the three months ended June 30, 2014, the Company recognized a $2 million
gain at the Turner segment, primarily related to the sale of a building in
South America. For the six months ended June 30, 2014, the Company also
recognized a $13 million gain at the Turner segment related to the sale of
Zite, Inc., a news content aggregation and recommendation platform, and a $441
million gain at Corporate in connection with the sale and leaseback of the
Company’s space in Time Warner Center.

For the three and six months ended June30, 2013, the Company recognized a
$9million gain at the Home Box Office segment as a result of the acquisition
of Home Box Office’s former partner’s interest in HBO Nordic. For the six
months ended June30, 2013, the Company also recognized an $8million gain at
Corporate on the disposal of certain corporate assets.

Other

Other reflects external costs related to mergers, acquisitions or dispositions
of $39 million and $59 million for the three and six months ended June 30,
2014, respectively, and $7 million and $18 million for the three and six
months ended June 30, 2013, respectively. External costs related to mergers,
acquisitions or dispositions for the three and six months ended June 30, 2014
consisted of $3 million and $10 million, respectively, at the Turner segment
primarily related to exit costs in connection with the shutdown of CNN Latino,
a Spanish-language news broadcast programming block, $2 million and $8
million, respectively, at the Warner Bros. segment primarily related to the
acquisition of the operations outside the U.S. of Eyeworks Group, a television
production and distribution company, and $34 million and $41 million,
respectively, at Corporate related to the legal and structural separation of
Time Inc. from Time Warner (the “Time Separation”). External costs related to
mergers, acquisitions or dispositions for the three and six months ended
June30, 2013 consisted of $7million and $16million, respectively, at
Corporate related to the Time Separation and, for the six months ended
June30, 2013, $2million at the Turner segment related to the shutdown of
certain of Turner’s entertainment networks in Spain.

External costs related to mergers, acquisitions or dispositions are included
in Selling, general and administrative expenses in the accompanying
Consolidated Statement of Operations.

Investment Gains (Losses), Net

For the three and six months ended June 30, 2014, the Company recognized $26
million and $21 million, respectively, of net miscellaneous investment gains.
For the three months ended June30, 2013, the Company recognized $16million
of net miscellaneous investment losses. For the six months ended June30,
2013, the Company recognized $55million of net miscellaneous investment gains
consisting of a $65million gain on the sale of the Company’s investment in a
theater venture in Japan, which included a $10million gain related to a
foreign currency contract, and $10million of net miscellaneous investment
losses.

Amounts Related to the Separation of Time Warner Cable Inc.

The Company recognized other expense of $1 million for the six months ended
June 30, 2014 and other income of $1 million and $6 million for the three and
six months ended June 30, 2013, respectively, related to the expiration,
exercise and net change in the estimated fair value of Time Warner equity
awards held by Time Warner Cable Inc. employees, which has been reflected in
Other income (loss), net in the accompanying Consolidated Statement of
Operations.

Amounts Related to the Disposition of Warner Music Group

The Company recognized other expense of $1 million for the six months ended
June 30, 2014 and a gain of $1 million for the three months ended June 30,
2013 primarily related to a tax indemnification obligation associated with the
disposition of Warner Music Group in 2004. These amounts have been reflected
in Other income (loss), net in the accompanying Consolidated Statement of
Operations.

Items Affecting Comparability Relating to Equity Method Investments

For both the three and six months ended June30, 2014, the Company recognized
$12million as its share of a loss on the extinguishment of debt recorded by
an equity method investee and $8million as its share of discontinued
operations recorded by an equity method investee. For both the three and six
months ended June30, 2013, the Company recognized $12million as its share of
a loss on the extinguishment of debt recorded by an equity method investee.
These amounts have been reflected in Other loss, net in the accompanying
Consolidated Statement of Operations.

Income Tax Impact

The income tax impact reflects the estimated tax provision or tax benefit
associated with each item affecting comparability. The estimated tax provision
or tax benefit can vary based on certain factors, including the taxability or
deductibility of the items and foreign tax on certain items.


TIME WARNER INC.
RECONCILIATIONS OF NON-GAAP FINANCIAL MEASURES
(Unaudited; millions)



Reconciliation of Cash Provided by Operations from Continuing Operations to
Free Cash Flow

                                    Three Months Ended  Six Months Ended
                                       6/30/14  6/30/13    6/30/14  6/30/13
                                                 (recast)             (recast)
Cash provided by operations from
continuing
operations                             $ 324     $   778    $ 2,057   $  1,525
Add external costs related to
mergers,
acquisitions, investments or
dispositions
and contingent consideration             17          7        32         216
payments
Add excess tax benefits from             31          46       95         130
equity instruments
Less capital expenditures                (114)       (93)     (206)      (172)
Less principal payments on              (2)        (2)     (5)       (4)
capital leases
Free Cash Flow                         $ 256     $   736    $ 1,973   $  1,695
                                                                         

                               TIME WARNER INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

Time Warner Inc. (“Time Warner” or the “Company”) is a leading media and
entertainment company, whose businesses include television networks and film
and TV entertainment. Time Warner classifies its operations into three
reportable segments: Turner:  consisting principally of cable networks and
digital media properties; Home Box Office:  consisting principally of premium
pay television services domestically and premium pay and basic tier television
services internationally; and Warner Bros.:  consisting principally of feature
film, television, home video and videogame production and distribution.

On June 6, 2014, the Company completed the legal and structural separation of
the Company’s Time Inc. segment from the Company (the “Time Separation”). With
the completion of the Time Separation, the Company disposed of the Time Inc.
segment in its entirety and ceased to consolidate its assets, liabilities and
results of operations in the Company’s consolidated financial statements.
Accordingly, the Company has recast its financial information to present the
financial condition and results of operations of its former Time Inc. segment
as discontinued operations in the Company’s consolidated financial statements
for all periods presented.

In connection with the Time Separation, the Company received $1.4billion from
Time Inc., consisting of proceeds relating to Time Inc.’s acquisition of the
IPC publishing business in the U.K. from a wholly-owned subsidiary of Time
Warner and a special dividend.

Note 2. INTERSEGMENT TRANSACTIONS

Revenues recognized by Time Warner’s segments on intersegment transactions are
as follows (millions):

                                                  
                                  Three Months Ended   Six Months Ended
                                  6/30/14  6/30/13    6/30/14  6/30/13
                                            (recast)             (recast)
Intersegment Revenues
Turner                            $  37     $   23     $  57     $   46
Home Box Office                      10         3         19         4
Warner Bros.                        202       150      368       298
Total intersegment revenues       $  249    $   176    $  444    $   348
                                                                     

Note 3. WARNER BROS. HOME VIDEO AND ELECTRONIC DELIVERY REVENUES

Home video and electronic delivery of theatrical and television product
revenues are as follows (millions):

                                                        
                                        Three Months Ended   Six Months Ended
                                        6/30/14   6/30/13   6/30/14  6/30/13
                                                                       
Home video and electronic
delivery of theatrical
product revenues                        $   563    $  444    $  945    $  900
Home video and electronic
delivery of television
product revenues                            110       147       224       296
                                                                          

Contact:

Time Warner Inc.
Corporate Communications
Keith Cocozza (212) 484-7482
or
Investor Relations
Michael Kopelman (212) 484-8920
Michael Senno (212) 484-8950
 
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