New York, NY (Top40 Charts) Chairman and Chief Executive Officer Jeff Bewkes said: "We got off to a very strong start in 2015, with Revenues up 5%, and Adjusted Operating Income growing 12% to a quarterly record of $1.8 billion. This led to a 23% increase in Adjusted EPS and puts us on track to achieve our goals for the year. We accomplished a lot in the quarter, led by Turner, which had its best quarter ever, with audience growth across a number of its networks. The NCAA Men's Basketball Tournament was a huge multiplatform success, with its highest average television viewership in over two decades helping make TBS the #1 ad-supported cable network in primetime among adults 18-49 in the quarter. And March
Madness Live served more than 80 million live video streams and grew its usage by almost 20% over last year's tournament. Warner Bros. led the domestic box office for the quarter on the strength of American Sniper, which brought in well over $500 million globally. Warner Bros. also continued to lead the industry in television production, including the #1 comedy and unscripted series among adults 18-49 on television this season. HBO once again grew domestic subscribers in the quarter while continuing to gain acclaim for groundbreaking programming such as the recent documentaries Going Clear: Scientology and the Prison of Belief and The Jinx: The Life and Deaths of Robert Durst. The return of Game of Thrones reached a new premiere high, while also providing the backdrop for the highly-anticipated launch of HBO NOW, our standalone streaming version of HBO - which is off to a great start. Reflecting our strong commitment to provide direct returns to shareholders, we returned more than $1.4 billion in dividends and share repurchases year-to-date."
Company Results
Revenues increased 5% to $7.1 billion due to growth across all divisions. Adjusted Operating Income grew 12% to $1.8 billion due to growth at Turner, offset in part by declines at Warner Bros. and Home Box Office. Operating Income decreased 13% to $1.8 billion primarily due to a $441 million gain in the prior year quarter in connection with the sale and leaseback of the Company's space in Time Warner Center. Adjusted Operating Income and Operating Income margins were both 25% in the first quarter of 2015 compared to 24% and 30%, respectively, in the prior year quarter.
The Company posted Adjusted Diluted Income per
Common Share from Continuing Operations ("Adjusted EPS") of $1.19, up 23% from $0.97 for the year-ago quarter. Diluted Income per
Common Share from Continuing Operations was $1.10 compared to $1.50 in the prior year quarter.
For the first three months of 2015, Cash Provided by Operations from Continuing Operations reached $1.0 billion and Free Cash Flow totaled $1.0 billion. As of March 31, 2015, Net Debt was $20.2 billion, up from $19.9 billion at the end of 2014, due to share repurchases, dividends and investments and acquisitions, partially offset by the generation of Free Cash Flow.
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.
Stock Repurchase Program Update
From January 1, 2015 through April 24, 2015, the Company repurchased approximately 14 million shares of common stock for approximately $1.1 billion. At April 24, 2015, approximately $3.4 billion remained available for repurchases under the Company's stock repurchase program.
Segment Performance
The schedule below reflects Time Warner's financial performance for the three months ended March 31, by line of business (millions).
Three Months Ended March 31,
2015
2014
Revenues:
Turner
$
2,710
$
2,593
Home Box Office
1,398
1,339
Warner Bros.
3,199
3,066
Intersegment eliminations
(180)
(195)
Total Revenues
$
7,127
$
6,803
Adjusted Operating Income (Loss) (a):
Turner
$
1,128
$
895
Home Box Office
458
464
Warner Bros.
330
380
Corporate
(102)
(119)
Intersegment eliminations
-
6
Total Adjusted Operating Income
$
1,814
$
1,626
Operating Income (Loss) (a):
Turner
$
1,108
$
900
Home Box Office
458
464
Warner Bros.
324
369
Corporate (b)
(104)
309
Intersegment eliminations
-
6
Total Operating Income
$
1,786
$
2,048
Depreciation and Amortization:
Turner
$
52
$
58
Home Box Office
25
25
Warner Bros.
89
93
Corporate
4
7
Intersegment eliminations
-
-
Total Depreciation and Amortization
$
170
$
183
(a)
Adjusted Operating Income (Loss) and Operating Income (Loss) for the three months ended March 31, 2015 and 2014 included restructuring and severance costs of (millions):
Three Months Ended March 31,
2015
2014
Turner
$
(8)
$
(12)
Home Box Office
(1)
(8)
Warner Bros.
(3)
(2)
Corporate
-
(4)
Total Restructuring and Severance Costs
$
(12)
$
(26)
(b)
Operating Income (Loss) for the three months ended March 31, 2014 included a $441 million gain in connection with the sale and leaseback of the Company's space in Time Warner Center.
Presented below is a discussion of the performance of Time Warner's segments for the first quarter of 2015. Unless otherwise noted, the dollar amounts in parentheses represent year-over-year changes.
TURNER
Revenues rose 5% ($117 million) to $2.7 billion, benefiting from growth of 4% ($42 million) in Advertising revenues, 3% ($38 million) in Subscription revenues and 25% ($37 million) in Content and other revenues. Advertising revenues benefited from growth at Turner's domestic businesses mainly due to the 2015 NCAA Division I Men's Basketball Championship tournament (the "NCAA Tournament") and growth at Turner's news businesses. Subscription revenues grew due to higher domestic rates partially offset by lower domestic subscribers. Both international advertising and international subscription revenue growth were more than offset by the impact of foreign exchange rates. The increase in Content and other revenues was due to higher subscription video-on-demand revenues.
Adjusted Operating Income increased 26% ($233 million) to $1.1 billion, primarily due to higher revenues and lower expenses, including lower marketing, programming and general and administrative costs, largely as a result of operational efficiency initiatives and timing. Programming costs declined 3% due primarily to timing and lower syndicated programming expenses as a result of the abandonment of certain programming in 2014.
Operating Income increased 23% ($208 million) to $1.1 billion. The current year quarter included a $17 million foreign currency charge related to the remeasurement of Turner's net monetary assets denominated in Venezuelan currency. The prior year quarter included a $13 million gain related to the sale of a digital news asset.
The NCAA Tournament across TBS, TNT, truTV and CBS averaged 11.3 million total viewers, up 8% from last year, and was the most-watched NCAA Tournament in 22 years. The NCAA Tournament
National Semifinal between Kentucky and Wisconsin - airing across TBS, TNT and truTV - averaged 22.6 million total viewers to deliver the most-watched basketball game ever on cable television and the most watched program in Turner's history. In addition, NCAA March
Madness Live delivered a 17% increase in live video streams compared to last year. During the first quarter of 2015, TBS ranked as the #1 ad-supported cable network in primetime among total viewers, adults 18-49 and adults 25-54. Adult Swim ranked #1 in total day on ad-supported cable among adults 18-34 and 18-49. CNN and HLN grew their total day ratings among adults 25-54 by 20% and 33%, respectively, in the first quarter.
HOME BOX OFFICE
Revenues grew 4% ($59 million) to $1.4 billion, reflecting increases of 4% ($49 million) in Subscription revenues and 5% ($10 million) in Content and other revenues. Subscription revenues increased primarily due to higher domestic rates, partially offset by the transfer to Turner of the operation of HBO's basic cable network in India. The increase in Content and other revenues reflected higher home entertainment revenues and higher international licensing revenues.
Adjusted Operating Income declined 1% ($6 million) to $458 million, as higher revenues were more than offset by higher programming, distribution and marketing costs. Programming costs grew 9%, primarily due to increased expenses for original programming. Distribution costs increased primarily due to higher participation expenses. The increase in marketing costs was primarily related to the launch of HBO NOW.
Operating Income decreased 1% ($6 million) to $458 million.
Through the first two weeks, the fifth season premiere of Game of Thrones totaled 18.1 million gross viewers, over 1 million more viewers than the prior season's first episode after the same period of time. In April 2015, Home Box Office launched HBO NOW, its stand-alone streaming service, in the U.S. In February, HBO's Citizenfour and Crisis Hotline: Veterans Press 1 received Academy Awards for Documentary Feature and Documentary Short Subject, respectively.
WARNER BROS.
Revenues increased 4% ($133 million) to $3.2 billion, reflecting higher television licensing revenues primarily due to the subscription video-on-demand sale of
Friends and higher revenues from videogames. Revenues also benefited from growth in theatrical revenues led by the strong performance of American Sniper. The increase was partially offset by the effect of foreign currency exchange rates.
Adjusted Operating Income declined 13% ($50 million) to $330 million, as higher revenues were more than offset by higher film and advertising costs due to the mix of theatrical releases and videogame product.
Operating Income decreased 12% ($45 million) to $324 million.
Through April 27, American
Sniper grossed over $540 million at the worldwide box office. On April 9, Warner Bros., its TT Games business and The LEGO Group announced LEGO Dimensions, a videogame experience that combines physical LEGO brick building toys based on multiple franchises, including Warner Bros.' DC Comics, The Lord of the Rings and The LEGO Movie, with interactive console gameplay.
CONSOLIDATED NET INCOME AND PER SHARE RESULTS
First-Quarter Results
Adjusted EPS was $1.19 for the three months ended March 31, 2015, compared to $0.97 in last year's first quarter. The increase in Adjusted EPS primarily reflects higher Adjusted Operating Income and fewer shares outstanding.
For the three months ended March 31, 2015, the Company had Income from Continuing Operations of $933 million, or $1.10 per diluted common share. This compares to Income from Continuing Operations attributable to Time Warner common shareholders in the first quarter of 2014 of $1.4 billion, or $1.50 per diluted common share.
For the first quarters of 2015 and 2014, the Company had Net Income of $970 million and $1.3 billion, respectively.
USE OF NON-GAAP FINANCIAL MEASURES
The Company utilizes Adjusted Operating Income (Loss), Adjusted Operating Income margin and Adjusted EPS, among other measures, to evaluate the performance of its businesses. These measures are considered important indicators of the operational strength of the Company's businesses. Some limitations of Adjusted Operating Income (Loss), Adjusted Operating Income margin 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.
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; amounts related to securities litigation and government investigations; and the foreign currency losses during the three months ended December 31, 2014 and March 31, 2015, related to the translation of net monetary assets denominated in Venezuelan currency resulting from the Company's change to the SICAD 2 exchange rate beginning December 31, 2014 and the Simadi exchange rate during the quarter ended March 31, 2015, respectively. Adjusted Operating Income margin is defined as Adjusted Operating Income divided by Revenues.
Adjusted EPS is Diluted Income per
Common Share from Continuing Operations attributable to Time Warner Inc. common shareholders with the following items excluded from Income from Continuing Operations attributable to Time Warner Inc. common shareholders: 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; the foreign currency losses during the three months ended December 31, 2014 and March 31, 2015 related to the translation of net monetary assets denominated in Venezuelan currency resulting from the Company's change to the SICAD 2 exchange rate beginning December 31, 2014 and the Simadi exchange rate during the quarter ended March 31, 2015, respectively; 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. Adjusted EPS is considered an important indicator of the operational strength of the Company's businesses as this measure eliminates 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.
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 EPS and Free Cash Flow should be considered in addition to, not as a substitute for, the Company's Operating Income (Loss), 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.
