Time Warner Posts Loss of $176 Million
Time Warner Inc., reporting its earnings for the first time since Time Inc. acquired control of Warner Communications, said it lost $176 million on revenue of $2.2 billion for the third quarter ended Sept. 30.
Time Warner’s loss was due in large part to interest expenses incurred as Time bought 100 million Warner shares, as well as the heavy costs of paying for Warner’s executive compensation plans and the amortization of goodwill made as part of the acquisition. Under terms of the merger, Warner Chairman Steven J. Ross is entitled to receive compensation of up to $180 million over eight years.
Included in Time Warner’s numbers were two months of financial results for Warner, which was 59.3% owned by Time Inc. in August and September. Warner released separate financial results Monday.
Time Warner’s interest expense for the three months came to $216 million, while the amortization of goodwill amounted to $40 million. Goodwill is the difference between the purchase price of an asset such as Warner and its value as carried on the accounting books. The difference is amortized, or written off as a non-cash expense, by the acquiring company over many years.
Warner’s results include a $120-million charge related to the cost of the executive compensation plans. Overall, Warner reported a loss of $106 million for the period on revenue of $1.5 billion.
John Tinker, analyst with the New York investment bank Morgan Stanley & Co., said while the results were not unexpected, the size of the loss “does take you a little aback.” Warner officials met with stock analysts Monday night to discuss the figures and to explain their contention that the figures show the combined company will be able to comfortably pay its $12 billion in debt.
To shed more light on the combined company’s recent operating performance, Time Warner also calculated pro forma results that assume that Warner was 100% owned by Time Inc. on Jan. 1, 1988.
The pro forma results show that earnings before interest, taxes, depreciation and amortization--a category often called operating cash flow--came to $526 million in the third quarter. By comparison, the two companies’ operating cash flow would have been $242 million in the hypothetical third period of 1988.
RESULTS AT A GLANCE
TIME WARNER INC.
Period ended Sept. 30, ’89
3 months 9 months In millions Revenue $2,194 $4,548 Income (loss) ($176) ($33)
WARNER COMMUNICATIONS
Period ended Sept. 30, ’89
3 months 9 months In millions Revenue $1,507 $4,264 Income (loss) ($106) $78
