Time Warner Reaffirms 2006 Full-Year Business Outlook

Time Warner Inc. (NYSE:TWX) today reaffirmed its 2006 full-year business outlook. Time Warner continues to expect that its 2006 full-year growth rate in Adjusted Operating Income before Depreciation and Amortization (which includes the expected net impact1 of the acquisition of the assets of Adelphia Communications Corporation, related transactions with Comcast Corporation, the consolidation of Court TV and the shutdown of The WB Network) will be in the low-double digits, off a base of $10.0 billion in 2005 (recast to reflect Time Warner Book Group, Turner South and certain cable systems as discontinued operations). The Company also reaffirmed its expectation that it will convert between 35% to 45% of its 2006 Adjusted Operating Income before Depreciation and Amortization into Free Cash Flow. The outlook above does not include the impact of any future merger or unidentified restructuring charges, as well as sales and acquisitions of operating assets that may occur from time to time due to management decisions and changing business circumstances. The Company is currently unable to forecast precisely the timing and/or magnitude of any such events. With the Company’s adoption of Financial Accounting Standards Statement 123R, "Share-Based Payment,” effective January 1, 2006, this outlook reflects the impact of expensing stock options for both 2005 and 2006. 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 noncash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales, and amounts related to securities litigation and government investigations (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 noncash 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 gains and losses on asset sales or amounts related to securities litigation and government investigations or any impairment charge related to goodwill, intangible assets and fixed assets. Management evaluates the investments in such tangible and intangible assets through other financial measures, such as capital expenditure budgets, investment spending levels and return on capital. Free Cash Flow is Cash Provided by Operations (as defined by U.S. generally accepted accounting principles) plus payments related to securities litigation and government investigations (net of any insurance recoveries) and excess tax benefits from the exercise of stock options, less cash flow attributable to discontinued operations, capital expenditures and product development costs, principal payments on capital leases and partnership distributions, if any. The Company uses Free Cash Flow to evaluate the performance of 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 limitation of this measure, however, is that it does not reflect payments made in connection with the securities litigation and government investigations, which reduce liquidity. 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 and liquidity reported in accordance with U.S. generally accepted accounting principles. 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. Information on Earnings Release and Conference Call In a separate release issued today, Time Warner Inc. reported the financial results for its third quarter ended September 30, 2006. The Company's earnings conference call can be heard live at 8:30 am ET on Wednesday, November 1, 2006. To listen to the call, visit www.timewarner.com/investors or AOL Keyword: IR. Caution Concerning Forward-Looking Statements This document includes certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations 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 and/or regulatory factors, sales of business assets, and the potential impact of future decisions by management that may result in merger and restructuring charges, as well as the potential impact of any future impairment charges to goodwill or other intangible assets. More detailed information about these factors may be found in filings by Time Warner Inc. with the Securities and Exchange Commission, including its most recent Annual Report on Form 10-K, as amended, and its Quarterly Reports on Form 10-Q, as amended. 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. 1 The net impact to Time Warner of the acquisition of assets from Adelphia and related transactions with Comcast reflects the acquisition of cable systems from Adelphia as well as certain Comcast cable systems received as part of related exchanges, offset in part by the transfer of certain Time Warner Cable systems to Comcast primarily in connection with the redemption of Comcast's interests in both Time Warner Cable Inc. and Time Warner Entertainment Company, L.P. The cable systems acquired from Adelphia and Comcast are reflected as of August 1, 2006, but not in any prior periods. The Time Warner Cable systems transferred to Comcast are reflected as discontinued operations in both 2005 and 2006; thus, the actual and expected results of such systems are excluded from the business outlook. TIME WARNER INC. RECONCILIATION OF GUIDANCE (In millions; Unaudited)     Year Ended December 31, 2005(1) Reconciliation of 2006 Guidance   Reconciliation of Adjusted Operating Income before Depreciation and Amortization to Operating Income:     Adjusted Operating Income before Depreciation and Amortization(2) $ 9,981  Low double-digits growth   Depreciation and Amortization (3,128) Low double-digits to mid-teens growth Impairment of goodwill, intangible and fixed assets (24) No further impairment expected(3) Gains and losses from asset sales 23  Increase in absolute Dollar amount(4) Amounts related to securities litigation and government investigations(5)   (2,865) Decrease in absolute dollar amount   Operating Income $ 3,987  Increase in absolute dollar amount   Free Cash Flow(6) $ 4,209  Free Cash Flow conversion between 35% to 45% of Adjusted Operating Income before Depreciation and Amortization Capital expenditures and product development costs plus principal payments on capital leases (all from continuing operations) 3,220  Increase in absolute dollar amount   Excess tax benefits from the exercise of stock options(7) (88) Unable to estimate   Payments related to securities litigation and government investigations(8)   (2,754) Decrease in absolute dollar amount(9)   Cash provided by continuing operations 4,587  Cash provided by continuing operations exceeding 85% of Operating Income   Cash provided by discontinued operations   290  Decrease in absolute dollar amount   Cash Provided by Operations $ 4,877  Cash Provided by Operations exceeding 85% of Operating Income Notes:(1) The 2005 amounts presented have been recast to reflect theadoption of Financial Accounting Standards Statement 123R,"Share-Based Payment" ("FAS 123R"), a change in methodology forrecognizing programming inventory costs at HBO and discontinuedoperations treatment of Time Warner Book Group, Turner South andcertain cable systems transferred to Comcast Corporation as part ofthe redemption of Comcast's interests in Time Warner Cable Inc. andTime Warner Entertainment Company, L.P. and the exchange of certaincable systems with Comcast. For further information, please refer tothe Company's Quarterly Report on Form 10-Q for the quarter endedSeptember 30, 2006.(2) Adjusted Operating Income before Depreciation and Amortizationexcludes the impact of noncash impairments of goodwill, intangible andfixed assets, as well as gains and losses on asset sales and amountsrelated to the securities litigation and government investigations.(3) Year-to-date through September 30, 2006, the Company hasrecognized $200 million in noncash impairments of goodwill.(4) Year-to-date through September 30, 2006, the Company hasrecognized $22 million in gains from asset sales.(5) In 2005, the Company established a $3.0 billion legal reserverelated to securities litigation and recognized $135 million ofinsurance recoveries, net of legal and professional expenses.(6) Free Cash Flow is defined as Cash Provided by Operations (asdefined by U.S. generally accepted accounting principles) pluspayments related to securities litigation and governmentinvestigations (net of any insurance recoveries) and excess taxbenefits from the exercise of stock options, less cash flowattributable to discontinued operations, capital expenditures andproduct development costs, principal payments on capital leases andpartnership distributions, if any.(7) As a result of the adoption of FAS 123R, actual tax benefits fromthe exercise of stock options that exceed those previously estimatedin determining stock compensation expense, "excess tax benefits," arenow required to be included in cash flows used by financing activitiesrather than in cash provided by operations. Because such tax benefitsreduce the Company's cash taxes, the Company also revised itsdefinition of Free Cash Flow to add the excess tax benefits from theexercise of stock options.(8) In 2005, Free Cash Flow excluded payments of $2.404 billion forthe settlement of securities litigation, $300 million for thesettlement of the SEC investigation and $50 million in related legalfees.(9) Year-to-date through September 30, 2006, the Company has made $267million in net payments related to the securities litigation andgovernment investigations.