Time Warner Provides 2005 Full-Year Business Outlook

    Business Editors/Entertainment Editors

    NEW YORK--(BUSINESS WIRE)--Feb. 4, 2005--Time Warner Inc. (NYSE:TWX) today provided its 2005 full-year business outlook.
    Time Warner announced that it expects its 2005 full-year growth rate in Adjusted Operating Income before Depreciation and Amortization to be in the high-single digits, as compared to $9.9 billion in 2004. This expectation reflects anticipated revenue gains and margin expansion.
    In addition, Time Warner said that it expects to convert between 30% to 40% of its 2005 Adjusted Operating Income before Depreciation and Amortization into Free Cash Flow.
    The outlook above does not include the impact of any future merger and restructuring charges that have not been identified and sales and acquisitions of operating assets that may occur from time to time due to management decisions and changing business circumstances, as well as the impact of any future reserves or payments made in connection with the pending securities litigation. The Company is currently unable to forecast precisely the timing and magnitude of any such events. In addition, the outlook does not include the effect of expensing stock options in accordance with the Company's planned adoption on July 1, 2005 of Financial Accounting Standards Board Statement 123R "Accounting for Stock-based Compensation."

    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 non-cash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales, legal reserves related to the government investigations and legal reserves that may be established in connection with the pending securities litigation (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 non-cash 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 the diminution in value of goodwill and intangible assets or gains and losses on asset sales. Management evaluates the costs of such tangible and intangible assets, the impact of related impairments, as well as asset sales through other financial measures, such as capital expenditures, investment spending and return on capital.
    Free Cash Flow is Cash Provided by Operations (as defined by accounting principles generally accepted in the United States) less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases and partnership distributions, if any. Free Cash Flow is considered to be 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. Free Cash Flow includes the impact of the settlement with the Department of Justice ($210 million in 2004) and the expected impact of a proposed settlement (approximately $300 million) that the staff of the Securities and Exchange Commission (SEC) has agreed to recommend to the SEC Commissioners, subject to agreement on appropriate documentation.
    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 accounting principles generally accepted in the United States.

    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 financial results for its full year and fourth quarter ended December 31, 2004.
    The Company's earnings conference call can be heard live at 9 am ET on Friday, February 4, 2005. 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 and its most recent quarterly report on Form 10-Q. 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.

TIME WARNER INC. RECONCILIATION OF GUIDANCE ($ in millions) (Unaudited)

Year Ended December 31, Reconciliation of 2004 2005 Guidance -------------- ------------------------

Reconciliation of Adjusted Operating Income Before Depreciation and Amortization to Operating Income: (1)

Time Warner Inc. --------------------------- Adjusted Operating Income Before Depreciation and Amortization $9,871 High single digit growth Depreciation and Amortization (3,207) Low to high single digit growth Impairment of goodwill, intangible and fixed assets (10) No material impairment expected Gains and losses from asset sales 21 No material gains/losses expected Legal reserves related to the government investigations (2) (510) Unable to estimate legal reserves for pending securities litigation --------------

Operating Income $6,165 Increase in absolute ============== Dollar amount

Time Warner Inc. ------------------ Free Cash Flow (3) $3,280 Free Cash Flow conversion between 30% to 40% of Adjusted Operating Income before Depreciation and Amortization Capital expenditures and product development costs plus principal payments on capital leases (all from continuing operations) 3,215 Increase in absolute -------------- dollar amount

Cash provided by continuing operations 6,495 Cash provided by continuing operations exceeding 85% of Operating Income Cash provided by discontinued operations 123 Decrease in absolute -------------- dollar amount Cash Provided by Operations $6,618 Cash Provided by ============== Operations exceeding 85% of Operating Income Notes: ------ (1) Adjusted Operating Income before Depreciation and Amortization excludes the impact of non-cash impairments of goodwill, intangible and fixed assets, as well as gains and losses on asset sales, legal reserves related to the government investigations, and legal reserves that may be established in connection with the pending securities litigation. (2) In 2004, the Company established $510 million of legal reserves related to the government investigations. (3) Free Cash Flow is defined as Cash Provided by Operations (as defined by accounting principles generally accepted in the United States) less cash provided by discontinued operations, capital expenditures and product development costs, principal payments on capital leases and partnership distributions, if any. Free Cash Flow includes the impact of the settlement with the Department of Justice ($210 million in 2004) and the expected impact of a proposed settlement (approximately $300 million) that the staff of the Securities and Exchange Commission (SEC) has agreed to recommend to the SEC Commissioners, which is subject to agreement on appropriate documentation and final approval.

--30--TM/ny*

CONTACT: Corporate Communications: Edward Adler, 212-484-6630 Mia Carbonell, 212-484-6684 Investor Relations: John Martin, 212-484-6579 Jim Burtson, 212-484-8719 Kelli Turner, 212-484-8269

KEYWORD: NEW YORK INDUSTRY KEYWORD: PUBLISHING ENTERTAINMENT TELEVISION/RADIO CABLE EARNINGS SOURCE: Time Warner Inc.

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