1. Time-Warner Inc. Joshua Diaz ACG2021 section 080 A term

2. Executive Summary Time Warner is one of the leading media and entertainment companies. Time- Warner’s businesses an array of the most respected and successful media brands. Among the Company's brands are HBO, CNN, AOL, People, Sports Illustrated, Time and Time Warner Cable. The Company has produced and distributed Films including The Lord of the Rings trilogy, the Harry Potter series, Million Dollar Baby and The Polar Express and television programs including ER, Two and a Half Men and The West Wing. As of February 1, 2005, the Company had approximately 85,000 employees worldwide. During 2004, the Company generated revenues of $42.089 billion, Operating Income of $6.165 billion, and a Net Income of $3.364 billion. Time-Warner Webpage

3. Part A. Introduction Richard D. Parsons, Chief Executive Officer Time Warner Inc. One Time Warner Center New York, NY 10019 Fiscal Year ended December 31, 2004 Time-Warner is active world-wide including North America, South America, Europe and Asia

4. Part A. Introduction 1.) AOL : Provide mainly interactive services including internet access. 2.) Cable: Provides video programming, high-speed data connections and digital phone services 3.) Filmed Entertainment: Produce and distribute feature films, television and home video products 4.) Networks: Provide Cable television and Broadcast Networks, including ownership and management 5.)Publishing: Provide Magazine and Book publishing services.

5. Part A. Audit Report Auditors: Ernst and Young LLP According to Ernst and Young LLP, the auditors are to go over all of Time-Warners’ financial statements and review them to make sure they’re legit. According to the audit, Ernst and Young LLP state that Time-Warner has properly or “fairly” presented all the correct financial statements as of December 31, 2004.

6. Part A. Stock Market Information Most recent price of the company’s stock: $18.10 Twelve month trading range of the company’s stock Paid no dividends this year Date of Above information: 10/06/2005 In my opinion the company should hold on to the stock for at least another month till the holidays come, then the price should go up.

7. Part B. Industry Situation and Company Plans Time-Warner is one of the leading media and entertainment companies in the world. Some of the businesses that compromise this major media outlet are AOL, CNN, HBO, Sports Illustrated and have produced films such as the Lord of the Rings Trilogy. In each companies case (or movie), they are the leaders in their category’s. AOL has for a long time sat upon the Internet service throne as king. In order to keep profits up from loss of dial-up service customers they plan on decreasing service prices and implementing lower levels of service commitments which in turn should help lower operating costs. Time-Warner is the 2 nd largest cable operator in the U.S. servicing more then 10.9 million subscribers. Thru their cable services they are able to offer TV, High speed internet connections and soon also digital phone services. The Publishing division of Time-Warner is also doing well. Time-Warner Book publishing has placed a record 58 books on the NY-Times Best Seller List Filmed-Entertainment has done increasingly well over the last few years. This is mainly do to a high # of DVD’s being sold, especially TV-series DVD’s www.finance.yahoo.com www.forbes.com/marketswww.finance.yahoo.comwww.forbes.com/markets

8. Part C. Income Statement The Format of this income statement is multi-step Gross profit has increased from 2003-2004 for so the company has sold more products/services. Income from operations has increased means they’re being more cost effective. Net income has increased meaning the company over all is growing In Millions 20032004 Gross Profit $39,563$42,089 Income from Operations $5,254$6,165 Net Income $2,639$3,364

9. Part C. Balance Sheet Insert a table showing that Assets=Liabilities + Stockholders’ Equity for the past two years. In your own words, comment in general on the increases or decreases in the balance sheet accounts. Which accounts changed the most? In Millions Total Assets= Total Liabilities+ 2003 $121,780 = $65,567 + 2004 $123,339 = $62,568 + Stockholders Equity $56,213 $60,771

10. Part C. Statement of Cash Flows Cash Flows from operations have been higher then net income for the last 2 years The company is growing through buying ownership in cable companies which in turn provide a multitude of services for revenue possibilities Time-Warner’s primary source of financing seems to be through borrowing (loans) and subscriptions. Over all cash has increased dramatically over the past 2 years. In 2003 Time-Warner reported an ending cash balance of $3,040,000,000, in 2004 they reported $6,139,000,000.

11. Part D. Accounting Policies Revenue Recognition: revenue is recognized when persuasive evidence of sales arrangement exists, delivery occurs or services are rendered, the sales price is fixed or determinable and collectibility is reasonably assured. Cash and Equivalents: Cash equivalents consist of commercial paper and other investments that are readily convertible into cash and have original maturities of three months or less. Investments: Investments in companies in which Time Warner has significant influence, but less than a controlling voting interest, are accounted for using the equity method. Property, Plant and Equipment: Property, plant and equipment are stated at cost. Depreciation, which includes amortization of capital leases, is provide generally on the straight-line method

12. Part D. Accounting Policies Topics of the notes to the financial statement Stock-Based Compensation Exchange of non-monetary assets Inventory costs Use of residual method in Fair Value Determinations Consolidation of variable interest entities Cash and Equivalents Restricted Cash Investments Accounts Receivable Securitization Facilitation Derivatives Financial Instruments Property, Plant and Equipment Capitalized Software Costs Intangible Assets Asset Impairments Accounting for Pension Plans Revenues and Costs Advertising Costs Income Taxes Comprehensive Income (loss) Merger and Restructuring Costs

13. Part E. Financial Analysis Liquidity Ratios In Millions 20032004Comments Working Capital $(4027)$15 Working Capital increased dramatically going from negative in 2003 to positive 15 in 2004 Current Ratio.752871.001 The current ratio increased by about.25 from 2003 to 2004 Receivable Turnover7.6 times 8.08 times Receivable Turnovers increased from 2003, turning A/R into cash 8.06 times in 2004 Average days sale48.0245.17 The Average days sales decreased by about 3 from 2003 to 2004 Inventory Turnover14.9815.6 Inventory was sold about 15.6 times in 2004 Average Days inventory on hand 23.424.4 Average # of days inventory on hand increased by 1 from 2003

14. Part E. Financial Analysis Profitability Ratios In millions20032004comments Profit Margin6.7%8% For every dollar of net sales, Time-Warner made $.08 in 2004 Asset Turnover.32.343 Time Warner generate.343 of every dollar invested in assets. Return on Assets2.1%2.7% Time-Warner gained 2.7% of every dollar invested in assets in 2004, an increase from 2003’s 2.1%. Return on Equity.045.0575 Time-Warner earned.0575 of every dollar invested in stockholders equity in 2004, an increase over 2003’s.045

15. Part E. Financial Analysis Solvency Ratio In Millions 20032004Comments Debt to Equity1.171.03 In both 2003 and 2004 Time-Warner used a high proportion of equity and debt to finance its assets. 2004 did show a decrease of.14 from 2003’s 1.17

16. Part E. Financial Analysis Market Strength Ratios For the past two years, calculate and comment on: Price/ear nings per share Dividend yield 20032004 Price/ Earnings Per Share Dividend Yield No dividends No dividends