UNAUDITED PRO FORMA CONSOLIDATED HISTORICAL INFORMATION
Exhibit
99.1
UNAUDITED
PRO FORMA
CONSOLIDATED
HISTORICAL INFORMATION
TWC Separation. On
May 20, 2008, Time Warner Inc. (“Time
Warner” or the “Company”),
Time Warner Cable Inc. (“TWC”)
and certain of their subsidiaries entered into a separation agreement (the
“Separation
Agreement”) for the purpose of achieving the legal and structural
separation of TWC from Time Warner (the “Separation”). Pursuant
to the Separation Agreement and related documents, (a) Time Warner completed
certain internal restructuring transactions, (b) on March 12, 2009,
TWC paid a special cash dividend of $10.27 per share of TWC Class A Common Stock
and TWC Class B Common Stock (aggregating $10.855 billion) (the “Special
Dividend”) that was
distributed pro rata to all holders of TWC Class A Common Stock and TWC Class B
Common Stock as of the close of business on March 11, 2009, resulting in the
receipt by Time Warner of approximately $9.25 billion and (c) subsequent
to its receipt of its portion of the Special Dividend, at 8:00 p.m. on March 12,
2009 (the “Distribution
Record Date”), Time Warner disposed of all its shares of TWC common stock
by transferring them to an account in the name of Computershare Inc., as
distribution agent for the benefit of its stockholders of record on the
Distribution Record Date (the “Eligible
Holders”). Computershare will hold such shares for the benefit
of the Eligible Holders from the Distribution Record Date until March 27, 2009,
at which time all of the shares of TWC common stock previously held by Time
Warner will be distributed to the Eligible Holders as a pro rata dividend in a
spin-off (the “Distribution”). After the
Distribution Record Date, Time Warner
does not beneficially own
any shares of TWC common stock and, following such
date,
will not consolidate TWC’s financial results
for the purpose of its
own financial reporting. The
historical financial results of TWC will be reflected in the Company’s
consolidated financial statements as discontinued operations.
After
completing the Separation,
the Company will
effect a
reverse stock split at 7:00
p.m. on
March
27, 2009 by
proportionately reducing the
number of shares of Time Warner Common Stock issued and outstanding or held in
treasury based on a reverse
stock split ratio of 1-for-3.
Pro Forma
Information. The accompanying unaudited pro forma consolidated
balance sheet of Time Warner as of December 31, 2008 is presented as if the
Separation had occurred on December 31, 2008. The accompanying
unaudited pro forma consolidated statements of operations of Time Warner for the
years ended December 31, 2008, 2007 and 2006 are presented as if the Separation
had occurred on January 1, 2006. The unaudited pro forma
consolidated financial information is presented based on information available,
is intended for informational purposes only, is not necessarily indicative of
and does not purport to represent what Time Warner’s future financial condition
or operating results will be after giving effect to the Separation and does not
reflect actions that may be undertaken by management after the
Separation. Additionally, this information does not reflect certain
financial and operating benefits Time Warner expects to realize as a result of
the Separation including any income related to the receipt by Time Warner of its
portion of the Special Dividend.
In
December 2008, Time Warner (as lender) and TWC (as borrower) entered into a
credit agreement for a two-year $1.535 billion senior unsecured supplemental
term loan facility (the “Supplemental
Credit Agreement”) under which TWC may borrow only to repay amounts
outstanding at the final maturity of TWC’s 2008 term loan
bridge facility, if any. The accompanying unaudited pro forma information
does not reflect any effect of the Supplemental Credit Agreement.
In
connection with the Separation, and as provided for in the Company’s equity
plans, the number of stock options, restricted stock units (“RSUs”) and target
performance stock units (“PSUs”) outstanding at
the separation date and the exercise prices of such stock options will be
adjusted to maintain the fair value of these awards. The changes in
the number of equity awards and the exercise prices will be determined by
comparing the fair value of such awards immediately prior to the Separation to
the fair value of such awards immediately after the Separation. The
modifications to the outstanding equity awards will be made pursuant to existing
antidilution provisions in the Company’s equity plans and such modifications
will not result in any additional compensation expense. In addition,
all such awards will be further adjusted for the effect of the Company’s 1-for-3
reverse stock split.
Time
Warner’s independent registered public accounting firm has not examined,
reviewed, compiled or applied agreed upon procedures to the unaudited pro forma
consolidated historical financial information presented herein and, accordingly,
assumes no responsibility for it.
The
accompanying unaudited pro forma financial statements do not give effect to the
Company’s adoption of Financial Accounting Standards Board Statement No. 160,
Noncontrolling Interests in
Consolidated Financial Statements, and FASB Staff Position Emerging
Issues Task Force Issue No. 03-6-1, Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities,
on January 1, 2009.
The
following is a brief description of the amounts recorded under each of the
column headings in the unaudited pro forma consolidated balance sheet and the
unaudited pro forma consolidated statements of operations:
UNAUDITED
PRO FORMA
CONSOLIDATED
HISTORICAL INFORMATION
Historical
Time Warner
This column reflects Time
Xxxxxx’x historical audited financial position as of December 31, 2008 and
historical audited operating results for the years ended December 31, 2008, 2007
and 2006, prior to any adjustment for the Separation and the other adjustments
described below.
TWC
Separation
This
column reflects TWC’s historical financial position as of December 31, 2008 and
historical operating results for the years ended December 31, 2008, 2007 and
2006, at the amounts that have been reflected in Time Warner’s consolidated
financial statements for such periods.
Other
Adjustments
This
column represents pro forma adjustments related primarily to the receipt of the
Company’s share of the Special Dividend and the Company’s reverse stock
split. These adjustments are summarized below, and are more fully
described in the notes to the unaudited pro forma consolidated financial
information:
●
|
Adjustments
for transactions between Time Warner and TWC that were previously
eliminated in consolidation or that arise as a direct result of the
Separation but will be included in the Company’s consolidated financial
position and results of operations (similar to third-party transactions)
upon the completion of the Separation. For example, this column
includes adjustments relating to revenue recognized by Home Box Office,
Inc. and Xxxxxx Broadcasting System, Inc. for services rendered to TWC, as
well as the associated expenses incurred by TWC, which were eliminated in
the historical consolidated financial statements of Time
Warner.
|
|
●
|
Adjustments
to reflect the reduction in the number of issued and outstanding shares of
Time Warner Common Stock based on a reverse stock split ratio of 1-for-3
and to reflect the increase in the number of stock options, RSUs and
target PSUs outstanding that have a dilutive effect at the Distribution
Record Date to maintain the fair value of these
awards.
|
The
unaudited pro forma consolidated financial information set forth below should be
read in conjunction with the notes to the unaudited pro forma consolidated
financial information and “Management’s Discussion and Analysis of Results of
Operations and Financial Condition” and the Company’s consolidated financial
statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended December 31, 2008.
2
Historical
Time
Warner
|
TWC
Separation
|
Other
Adjustments
|
Pro
Forma
Time
Warner
|
|||||||||||||||||
ASSETS
|
||||||||||||||||||||
Current
assets
|
||||||||||||||||||||
Cash
and
equivalents
|
$ | 6,682 | $ | 5,449 | $ | 9,250 |
(a)
|
$ | 10,483 | |||||||||||
Receivables,
less
allowances
|
6,195 | 692 | 187 |
(b)
|
5,690 | |||||||||||||||
Inventories
|
1,989 | – | – | 1,989 | ||||||||||||||||
Prepaid
expenses and other current assets
|
976 | 204 | – | 772 | ||||||||||||||||
Deferred
income
taxes
|
760 | 136 | – | 624 | ||||||||||||||||
Total
current
assets
|
16,602 | 6,481 | 9,437 | 19,558 | ||||||||||||||||
Noncurrent
inventories and film
costs
|
5,192 | – | – | 5,192 | ||||||||||||||||
Investments,
including available-for-sale securities
|
1,930 | 895 | – | 1,035 | ||||||||||||||||
Property,
plant and equipment,
net
|
18,433 | 13,537 | – | 4,896 | ||||||||||||||||
Intangible
assets subject to amortization, net
|
4,057 | 493 | – | 3,564 | ||||||||||||||||
Intangible
assets not subject to amortization
|
31,822 | 24,094 | – | 7,728 | ||||||||||||||||
Goodwill
|
34,530 | 2,101 | – | 32,429 | ||||||||||||||||
Other
assets
|
1,330 | 110 | – | 1,220 | ||||||||||||||||
Total
assets
|
$ | 113,896 | $ | 47,711 | $ | 9,437 | $ | 75,622 | ||||||||||||
LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
||||||||||||||||||||
Current
liabilities
|
||||||||||||||||||||
Accounts
payable
|
$ | 1,341 | $ | 545 | $ | 4 | (b) | $ | 800 | |||||||||||
Participations
payable
|
2,522 | – | – | 2,522 | ||||||||||||||||
Royalties
and programming costs
payable
|
1,265 | 579 | – | 686 | ||||||||||||||||
Deferred
revenue
|
1,169 | 156 | – | 1,013 | ||||||||||||||||
Debt
due within one
year
|
2,067 | – | – | 2,067 | ||||||||||||||||
Other
current
liabilities
|
5,610 | 1,428 | 157 |
(b)
|
4,339 | |||||||||||||||
Current
liabilities of discontinued operations
|
2 | – | – | 2 | ||||||||||||||||
Total
current
liabilities
|
13,976 | 2,708 | 161 | 11,429 | ||||||||||||||||
Long-term
debt
|
37,616 | 17,727 | – | 19,889 | ||||||||||||||||
Mandatorily
redeemable preferred membership units issued by a
subsidiary
|
300 | 300 | – | – | ||||||||||||||||
Deferred
income
taxes
|
8,756 | 7,782 | – | 974 | ||||||||||||||||
Deferred
revenue
|
283 | 17 | – | 266 | ||||||||||||||||
Other
liabilities
|
7,258 | 494 | – | 6,764 | ||||||||||||||||
Minority
interests
|
3,419 | 2,750 | – | 669 | ||||||||||||||||
Shareholders’
Equity
|
||||||||||||||||||||
Time
Warner common
stock
|
49 | – | (33 | ) |
(c)
|
16 | ||||||||||||||
Paid-in-capital
|
169,531 | 16,400 | 9,309 |
(a),(b),(c)
|
162,440 | |||||||||||||||
Treasury
stock, at
cost
|
(25,836 | ) | – | – | (25,836 | ) | ||||||||||||||
Accumulated
other comprehensive income (loss), net
|
(1,676 | ) | (467 | ) | – | (1,209 | ) | |||||||||||||
Accumulated
deficit
|
(99,780 | ) | – | – | (99,780 | ) | ||||||||||||||
Total
shareholders’
equity
|
42,288 | 15,933 | 9,276 | 35,631 | ||||||||||||||||
Total
liabilities and shareholders’ equity
|
$ | 113,896 | $ | 47,711 | $ | 9,437 | $ | 75,622 |
See
accompanying notes to pro forma consolidated financial
information.
3
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For
the Year Ended December 31, 2008
(Unaudited)
(millions,
except per share amounts)
Historical
Time
Warner
|
TWC
Separation
|
Other
Adjustments
|
Pro
Forma
Time
Warner
|
||||||||||||||
Revenues:
|
|||||||||||||||||
Subscription
|
$ | 25,786 | $ | 16,302 | $ | 842 |
(a)
|
$ | 10,326 | ||||||||
Advertising
|
8,742 | 898 | 8 |
(a)
|
7,852 | ||||||||||||
Content
|
11,432 | – | 3 |
(a)
|
11,435 | ||||||||||||
Other
|
1,024 | – | – | 1,024 | |||||||||||||
Total
revenues
|
46,984 | 17,200 | 853 | 30,637 | |||||||||||||
Costs
of revenues
|
(27,289 | ) | (10,971 | ) | (845 | ) |
(a)
|
(17,163 | ) | ||||||||
Selling,
general and administrative
|
(10,163 | ) | (2,854 | ) | (8 | ) |
(a)
|
(7,317 | ) | ||||||||
Amortization
of intangible assets
|
(784 | ) | (262 | ) | – | (522 | ) | ||||||||||
Amounts
related to securities litigation and government
investigations
|
(21 | ) | – | – | (21 | ) | |||||||||||
Merger-related,
restructuring and shutdown costs
|
(359 | ) | (15 | ) | – | (344 | ) | ||||||||||
Asset
impairments and gain (loss) on disposal of assets, net
|
(24,325 | ) | (14,880 | ) | – | (9,445 | ) | ||||||||||
Operating
income (loss)
|
(15,957 | ) | (11,782 | ) | – | (4,175 | ) | ||||||||||
Interest
expense, net
|
(2,250 | ) | (923 | ) | – | (1,327 | ) | ||||||||||
Other
income (loss), net
|
(416 | ) | (367 | ) | – | (49 | ) | ||||||||||
Minority
interest income (expense), net
|
1,974 | 1,925 | – | 49 | |||||||||||||
Income
(loss) from continuing operations before income taxes
|
(16,649 | ) | (11,147 | ) | – | (5,502 | ) | ||||||||||
Income
tax benefit (provision)
|
3,247 | 4,191 | – | (944 | ) | ||||||||||||
Net
income (loss) from continuing operations
|
$ | (13,402 | ) | $ | (6,956 | ) | $ | – | $ | (6,446 | ) | ||||||
Basic
income (loss) per common share from continuing operations
|
$ | (3.74 | ) | $ | (5.40 | ) | |||||||||||
Average
basic common shares outstanding
|
3,582.6 | (2,388.4 | ) |
(b)
|
1,194.2 | ||||||||||||
Diluted
income (loss) per common share from continuing operations
|
$ | (3.74 | ) | $ | (5.40 | ) | |||||||||||
Average
diluted common shares outstanding
|
3,582.6 | (2,388.4 | ) |
(b)
|
1,194.2 |
See
accompanying notes to pro forma consolidated financial
information.
4
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For
the Year Ended December 31, 2007
(Unaudited)
(millions,
except per share amounts)
Historical
Time Warner
|
TWC
Separation
|
Other
Adjustments
|
Pro
Forma
Time Warner
|
|||||||||||||
Revenues:
|
||||||||||||||||
Subscription
|
$ | 24,904 | $ | 15,088 | $ | 810 |
(a)
|
$ | 10,626 | |||||||
Advertising
|
8,799 | 867 | 11 |
(a)
|
7,943 | |||||||||||
Content
|
11,708 | - | 1 |
(a)
|
11,709 | |||||||||||
Other
|
1,071 | - | 5 |
(a)
|
1,076 | |||||||||||
Total
revenues
|
46,482 | 15,955 | 827 | 31,354 | ||||||||||||
Costs
of revenues
|
(27,426 | ) | (10,246 | ) | (819 | ) |
(a)
|
(17,999 | ) | |||||||
Selling,
general and administrative
|
(9,653 | ) | (2,648 | ) | (8 | ) |
(a)
|
(7,013 | ) | |||||||
Amortization
of intangible assets
|
(674 | ) | (272 | ) | - | (402 | ) | |||||||||
Amounts
related to securities litigation and government
investigations
|
(171 | ) | - | - | (171 | ) | ||||||||||
Merger-related,
restructuring and shutdown costs
|
(262 | ) | (23 | ) | - | (239 | ) | |||||||||
Asset
impairments and gain (loss) on disposal of assets, net
|
653 | - | - | 653 | ||||||||||||
Operating
income
|
8,949 | 2,766 | - | 6,183 | ||||||||||||
Interest
expense, net
|
(2,299 | ) | (894 | ) | - | (1,405 | ) | |||||||||
Other
income (loss), net
|
145 | 156 | - | (11 | ) | |||||||||||
Minority
interest income (expense), net
|
(408 | ) | (302 | ) | - | (106 | ) | |||||||||
Income
from continuing operations before income taxes
|
6,387 | 1,726 | - | 4,661 | ||||||||||||
Income
tax benefit (provision)
|
(2,336 | ) | (719 | ) | - | (1,617 | ) | |||||||||
Net
income from continuing operations
|
$ | 4,051 | $ | 1,007 | $ | - | $ | 3,044 | ||||||||
Basic
income per common share from continuing operations
|
$ | 1.09 | $ | 2.46 | ||||||||||||
Average
basic common shares outstanding
|
3,718.9 | (2,479.3 | ) |
(b)
|
1,239.6 | |||||||||||
Diluted
income per common share from continuing operations
|
$ | 1.08 | $ | 2.42 | ||||||||||||
Average
diluted common shares outstanding
|
3,762.3 | (2,503.4 | ) |
(b)
|
1,258.9 |
See
accompanying notes to pro forma consolidated financial
information.
5
PRO
FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For
the Year Ended December 31, 2006
(Unaudited)
(millions,
except per share amounts)
Historical
Time Warner
|
TWC
Separation
|
Other
Adjustments
|
Pro
Forma
Time Warner
|
|||||||||||||
Revenues:
|
||||||||||||||||
Subscription
|
$ | 23,651 | $ | 11,103 | $ | 681 |
(a)
|
$ | 13,229 | |||||||
Advertising
|
8,283 | 664 | 11 |
(a)
|
7,630 | |||||||||||
Content
|
10,670 | - | 1 |
(a)
|
10,671 | |||||||||||
Other
|
1,086 | - | 9 |
(a)
|
1,095 | |||||||||||
Total
revenues
|
43,690 | 11,767 | 702 | 32,625 | ||||||||||||
Costs
of revenues
|
(24,876 | ) | (7,239 | ) | (694 | ) |
(a)
|
(18,331 | ) | |||||||
Selling,
general and administrative
|
(10,397 | ) | (2,126 | ) | (8 | ) |
(a)
|
(8,279 | ) | |||||||
Amortization
of intangible assets
|
(587 | ) | (167 | ) | - | (420 | ) | |||||||||
Amounts
related to securities litigation and government
investigations
|
(705 | ) | - | - | (705 | ) | ||||||||||
Merger-related,
restructuring and shutdown costs
|
(400 | ) | (56 | ) | - | (344 | ) | |||||||||
Asset
impairments and gain (loss) on disposal of assets, net
|
578 | - | - | 578 | ||||||||||||
Operating
income
|
7,303 | 2,179 | - | 5,124 | ||||||||||||
Interest
expense, net
|
(1,674 | ) | (646 | ) | - | (1,028 | ) | |||||||||
Other
income (loss), net
|
1,127 | 131 | - | 996 | ||||||||||||
Minority
interest income (expense), net
|
(375 | ) | (287 | ) | - | (88 | ) | |||||||||
Income
from continuing operations before income taxes
|
6,381 | 1,377 | - | 5,004 | ||||||||||||
Income
tax benefit (provision)
|
(1,308 | ) | (388 | ) | - | (920 | ) | |||||||||
Net
income (loss) from continuing operations
|
$ | 5,073 | $ | 989 | $ | - | $ | 4,084 | ||||||||
Basic
income per common share from continuing operations
|
$ | 1.21 | $ | 2.93 | ||||||||||||
Average
basic common shares outstanding
|
4,182.5 | (2,788.3 | ) |
(b)
|
1,394.2 | |||||||||||
Diluted
income per common share from continuing operations
|
$ | 1.20 | $ | 2.89 | ||||||||||||
Average
diluted common shares outstanding
|
4,224.8 | (2,811.8 | ) |
(b)
|
1,413.0 | |||||||||||
See
accompanying notes to pro forma consolidated financial information.
6
Notes
to Unaudited Pro Forma Consolidated Financial Information
Note
1: Unaudited Pro Forma Adjustments to Consolidated Balance Sheet as of December
31, 2008
The pro
forma adjustments to Time Warner’s consolidated balance sheet as of December 31,
2008 relate to (1) the elimination of the assets, liabilities and equity of TWC
and (2) other adjustments as follows:
(a)
|
Receipt
by Time Warner of its pro rata portion of the Special
Dividend. The accompanying pro forma consolidated statements of
operations do not reflect any increase in interest income that would
result from an investment of the $9.25 billion received or any reduction
of interest expense that would occur upon the use of the proceeds to
reduce a portion of Time Warner’s outstanding
indebtedness;
|
(b)
|
Adjustments
for transactions between Time Warner and TWC that were eliminated in
consolidation in the preparation of Time Warner’s historical consolidated
financial statements or that arise as a direct result of the Separation,
but that are reflected as assets and liabilities in the “Pro Forma Time
Warner” continuing operations presentation (similar to third-party
transactions) upon the completion of the Separation;
and
|
(c)
|
The
adjustment to reflect the reduction in the number of issued and outstanding shares of Time Warner Common Stock based
on a reverse stock
split ratio of
1-for-3.
|
Note
2: Unaudited Pro Forma Adjustments to Consolidated Statements of Operations —
Years Ended December 31, 2008, 2007 and 2006
The pro
forma adjustments to Time Xxxxxx’x consolidated statements of operations for the
years ended December 31, 2008, 2007 and 2006 relate to (1) the elimination
of the results of operations of TWC and (2) other adjustments as
follows:
(a)
|
An
adjustment to revenues, costs of revenues and selling, general and
administrative expense related to transactions between Time Warner and TWC
that were eliminated in consolidation in the preparation of Time Warner’s
historical consolidated financial statements, but that are reflected as
revenues, costs of revenues and selling, general and administrative
expense in the “Pro Forma Time Warner” continuing operations presentation
(similar to third-party transactions) upon the completion of the
Separation; and
|
(b)
|
The
adjustments to reflect the reduction in the number of issued
and outstanding shares of Time Warner Common Stock based
on the Company’s reverse stock split ratio of
1-for-3 and to reflect the increase in the
number of stock options, RSUs and target PSUs outstanding that have
a dilutive effect at the Distribution Record Date to maintain the fair
value of these awards.
|
7