Time Warner (TWX) Boosts FY16 EPS Outlook

November 2, 2016 7:10 AM EDT
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Time Warner Inc. (NYSE: TWX) increased its 2016 full-year business outlook. The Company now expects its 2016 full-year Adjusted Diluted Income per Common Share from Continuing Operations (“Adjusted EPS”) to be in the range of $5.73 to $5.83. This outlook includes a $0.28 net tax benefit recognized in the third quarter of 2016 related to an Internal Revenue Service-approved tax accounting method change. Absent that benefit, the outlook for 2016 Adjusted EPS would be $5.45-$5.55.

(*** NOTE: The Street sees FY16 EPS of $5.43.)

The outlook for 2016 Adjusted EPS does not include the impact of any future merger or unplanned restructuring and severance charges, the impact from future sales or acquisitions of operating assets or the impact of taxes on such items. These items may occur from time to time due to management decisions and changing business circumstances, and the impact of such items would be included in both Adjusted EPS (other than gains or losses from operating assets and any related tax effect) and Diluted Income per Common Share from Continuing Operations attributable to Time Warner Inc. common shareholders (“EPS”), which is the most directly comparable GAAP measure to Adjusted EPS. The Company is currently unable to forecast precisely the timing and/or magnitude of any such events and resulting impacts on EPS and Adjusted EPS.

Use of Adjusted EPS Measure

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 (including extinguishments of debt) and investments, in each case including associated costs of the transaction; 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 (including restructuring and severance costs associated with 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. 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 EPS, however, are that it does not reflect certain charges that affect the operating results of the Company’s businesses and that it involves judgment as to whether items affect fundamental operating performance. Also, a general limitation of Adjusted EPS is that it is 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.

Beginning with periods ending on or after October 1, 2016, Adjusted EPS will be 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 (including extinguishments of debt) and investments, in each case including associated costs of the transaction; gains and losses recognized in connection with pension and other postretirement benefit plan curtailments or settlements; costs related to the pending acquisition by AT&T Inc. (including retention, restructuring and severance costs associated with the transaction); external costs related to mergers, acquisitions, investments or dispositions (including restructuring and severance costs associated with 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 should be considered in addition to, not as a substitute for, the Company’s EPS and other measures of financial performance reported in accordance with U.S. generally accepted accounting principles.

A reconciliation of the Company’s expected 2016 Adjusted EPS to its expected 2016 EPS, to the extent practicable, is included with this release. The reconciliation does not include the expected 2016 EPS because the company is unable to forecast the timing and/or magnitude of some items that are included in EPS but excluded from Adjusted EPS, but it is likely there will be additional amounts during the remainder of 2016.

Information on Earnings Release & Conference Call

In a separate release issued today, Time Warner Inc. reported the financial results for its third quarter ended September 30, 2016.

The Company’s conference call can be heard live at 8:30 am ET on Wednesday, November 2, 2016. To listen to the call, visit www.timewarner.com/investors.

TIME WARNER INC.
RECONCILIATION OF GUIDANCE
(Unaudited)
Year Ended
December 31, 2015 Reconciliation of 2016 Guidance

Reconciliation of Adjusted Diluted Income per Common Share from Continuing Operations to Diluted Income per Common Share from Continuing Operations

Adjusted EPS(1) $4.75

Expected to be in the range of $5.73 to $5.83. This outlook includes a $0.28 net tax benefit recognized in the third quarter of 2016 related to an Internal Revenue Service-approved tax accounting method change. Absent that benefit, the outlook for 2016 Adjusted EPS would be $5.45-$5.55.

Asset impairments (0.03)

Unable to estimate beyond the ($0.04) recognized for the period January 1, 2016 through September 30, 2016.(2)

Gains (losses) on operating assets, net -

Unable to estimate beyond the $0.10 recognized for the period January 1, 2016 through September 30, 2016.(2)

Venezuelan foreign currency loss (0.03) Not applicable.
Other operating income items (0.01)

Unable to estimate beyond the ($0.04) recognized for the period January 1, 2016 through September 30, 2016 and the ($0.04 - $0.05) expected to be recognized for the period October 1, 2016 through December 31, 2016.(2) (3) (4)

Gains and losses on investments (0.04)

Unable to estimate beyond the $0.12 recognized for the period January 1, 2016 through September 30, 2016.(2)

Other items (0.13)

Unable to estimate beyond the ($0.20) recognized for the period January 1, 2016 through September 30, 2016.(2)

Tax impact on above items 0.07

Unable to estimate beyond the ($0.02) recognized for the period January 1, 2016 through September 30, 2016 and the $0.01 - $0.02 expected to be recognized for the period October 1, 2016 through December 31, 2016.(2) (3) (4)

Diluted Income per Common Share from Continuing Operations $4.58

Unable to estimate.(2)

(1) 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 (including extinguishments of debt) and investments, in each case including associated costs of the transaction; 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 (including restructuring and severance costs associated with 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.
Beginning with periods ending on or after October 1, 2016, Adjusted EPS will be 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 (including extinguishments of debt) and investments, in each case including associated costs of the transaction; gains and losses recognized in connection with pension and other postretirement benefit plan curtailments or settlements; costs related to the pending acquisition by AT&T Inc. (including retention, restructuring and severance costs associated with the transaction); external costs related to mergers, acquisitions, investments or dispositions (including restructuring and severance costs associated with 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.
(2) Because of the nature of the items, the Company is unable to estimate the amounts of any adjustments for the items excluded from Income from Continuing Operations attributable to Time Warner Inc. common shareholders for the period after September 30, 2016, other than the item noted in (3) below, due to its inability to forecast if or when any such items will occur. Based on the occurrence of small amounts of these items for the nine months ended September 30, 2016, it is likely that additional amounts will occur during the three months ended December 31, 2016.
(3) On August 1, 2016, the Time Warner Pension Plan (the “Pension Plan”) was amended to provide for a one-time lump sum window program for eligible vested participants who (i) had terminated employment as of May 31, 2016, (ii) had not yet commenced payment of their benefits as of May 31, 2016, (iii) are not otherwise eligible for an immediate lump sum payment of their benefits and (iv) have benefits with a present value of less than $50,000. Eligible participants had the opportunity to elect, during the period beginning on August 16, 2016 and ending on October 7, 2016, to receive their benefits in the form of an immediate lump sum payment. Certain annuity options were also available. Payments to those eligible participants who elected to receive their benefit under the window program will be made or commence as of December 2016. During the three months ended December 31, 2016, the Company expects to recognize settlement losses related to continuing operations of approximately $15 million to $20 million and settlement losses related to discontinued operations of approximately $40 million to $50 million in connection with this amendment to the Pension Plan.
(4) On October 22, 2016, the Company entered into an Agreement and Plan of Merger with AT&T Inc. and West Merger Sub, Inc. pursuant to which the Company will be acquired by AT&T Inc. for $107.50 per share, with $53.75 to be paid in cash and the remaining 50% in AT&T Inc. stock. In connection with entering into the merger agreement, the Company approved special retention restricted stock units ("Retention RSUs") and cash retention awards to be awarded to certain employees. Details pertaining to the granting of some of these special retention awards have not yet been finalized. However, for grants finalized prior to November 2, 2016, the Company expects to recognize approximately $15 million to $20 million of expenses related to such Retention RSUs and cash awards during the three months ended December 31, 2016.


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