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Home News Photos S ANNUAL REPORT 2008 NYSE:TWX /64, 5,>: 7/6;6: : ;4A*64 >,) 04(.,: =0+,6 36*(3 -05+6<;>/,5;4A0:65;= /64, ;4A;= 7/6;6: =0+,6: ;4A46)03, *(;,.690,: Cover images, top to bottom: Harry Potter and the Half-Blood Prince/People.com/ CNN political coverage/True Blood/TMZ.com Above: The Dark Knight/The No. 1 Ladies’ Detective Agency/ Sports Illustrated A MESSAGE FROM CHAIRMAN & CEO JEFF BEWKES To Our Shareholders, Despite today’s economic headwinds, I’m very confifi dent about the future of our company. With the steps we’ve taken over the last year, Time Warner is now a leaner and more tightly focused company. Our content businesses are leaders in each of their industries. More importantly, we have the scale, brands and talent to extend our lead in an increasingly digital and global landscape. We’ve also strengthened our balance sheet, which allows us – even in these diffificult times – to invest in our businesses and maximize value for our stockholders. By spinning off Time Warner Cable in early 2009, we’ve become a more integrated content company – with television and fi lm production at Warner Bros., cable television networks at Turner and HBO, and publishing at Time Inc. We’ve also streamlined our operations in the past year. We combined the operations of our New Line and Warner Bros. film studios, launched the most extensive reorganization in Time Inc.’s history, and trimmed over 15% of corporate expenses – for a total annual run rate of more than $400 million in cost savings. At AOL, we recently brought in a new management team with impressive experience in online advertising, and we’re working hard to determine the best structure for AOL’s businesses. We plan to build on the success of our businesses by continuing to produce the most compelling content for consumers worldwide. Last year, Warner Bros. released the second-highest-grossing film ever domestically with The Dark Knight, which helped our studios achieve the top spot at the U.S. and international box offifice. At our networks, CNN provided innovative election coverage that outperformed the broadcast networks and earned a prestigious Peabody Award. TNT and TBS featured such original Above: (Clockwise from top) The Closer/Entourage/Two and a Half Men/ Watchmen/LEGO Batman: The Videogame/Quién Opposite: CNNMoney.com/MediaGlow/CNN.com programming as The Closerr, Saving Grace and Tyler Perry’s House of Payne – solidifying their ratings lead among advertising-supported cable networks. HBO not only led all other networks with 26 Primetime Emmy Awards, but also put a record number of pilots into development. Reflfl ecting the quality of its content, Time Inc. grew its readership and extended its preeminence in publishing. This year, our company will keep providing high-quality content – whether Warner Bros.’ release of Harry Potter and the Half-Blood Prince, HBO’s The No. 1 Ladies’ Detective Agencyy or TNT’s HawthoRNe. At the same time, we’re transitioning our businesses to take advantage of digital technologies. For example, we’re spearheading an industry campaign – TV Everywhere – to provide consumers easier access to more television programs online, whenever and wherever they want them, through their cable or satellite subscriptions. This will give consumers more value for their money while enabling the industry to build on its current business models. Meanwhile, our businesses continued to lead their industries in the digital arena in 2008 – with CNN’s online and mobile services beating all competitors, Time Inc.’s network of sites ranking among the top 20 most-visited Internet properties, and Warner Bros. ranking number one in the fast-growing Blu-ray Disc and video-on-demand formats domestically. Developing original content aimed at international audiences is another major focus for us. In India this year, Turner Broadcasting and Warner Bros. jointly launched an English-language channel, WB, while Turner introduced a new Hindi-language pay-TV channel, REAL. We recently announced agreements to acquire a significant stake in Central European Media Enterprises (CME), a leading television broadcaster in Central and Eastern Europe, and for Warner Bros. to partner with CME to develop television channels across the region. Above: (Clockwise from top left) Harry Potter and the Half-Blood Prince/ Tyler Perry’s House of Payne/Bebo.com/TIME.com/HBOonDemand.com/ InStyle.com/Star Wars: The Clone Wars/Big Love Opposite: Maghound.com/Pogo/Platform-A While we build on our leading positions, we’re managing our balance sheet prudently to maximize value for our stockholders. We continue to strengthen our balance sheet, including receiving $9.25 billion in a March 2009 cash dividend from Time Warner Cable as part of the separation of the two companies. This payment, coupled with the robust free cash fl ow generated by our businesses, puts Time Warner in the enviable position of being able to do a number of things at once – increase investments in our businesses, reduce our level of debt, and return value directly to our stockholders through dividends and stock repurchases. In fact, even after the spin-off of Time Warner Cable, we have maintained the same quarterly cash dividend per share, which increased the effective payout for our stockholders. We’ll also look to restart our stock buyback under our currently authorized program when we can. While these are extraordinarily challenging times, I have great confifidence that Time Warner will emerge in an even stronger competitive position. I’m especially grateful to our employees – the talented people of Time Warner – who do such an exceptional job managing our businesses and bringing entertainment and news to the world. On their behalf, I thank you for your continued support. JEFF BEWKES Chairman and CEO April 8, 2009 BOARD OF DIRECTORS & MANAGEMENT TIME WARNER BOARD OF DIRECTORS Jeffrey L. Bewkes Robert C. Clark Michael A. Miles Chairman of the Board and CEO, Distinguished Service Professor, Special Limited Partner, Time Warner Inc. Harvard University Forstmann Little & Company Herbert M. Allison, Jr. Mathias Döpfner Kenneth J. Novack President and CEO, Fannie Mae Chairman and CEO, Senior Counsel, Mintz, Levin, Cohn, James L. Barksdale Axel Springer AG Ferris, Glovsky and Popeo, PC Chairman and President, Jessica P. Einhorn Richard D. Parsons* Barksdale Management Corporation Dean, Paul H. Nitze School of Former Chairman of the Board, Stephen F. Bollenbach Advanced International Studies (SAIS) Time Warner Inc. Former Co-Chairman and CEO, at The Johns Hopkins University Deborah C. Wright Hilton Hotels Corporation Reuben Mark* Chairman, President and CEO, Frank J. Caufield Former Chairman of the Board, Carver Bancorp, Inc. and Carver Co-Founder and Partner Emeritus, Colgate-Palmolive Company Federal Savings Bank Kleiner Perkins Caufifi eld & Byers *Messrs. Mark and Parsons will step down from the Board at the Annual Meeting of Stockholders on May 28, 2009. TIME WARNER SENIOR CORPORATE EXECUTIVES Jeffrey L. Bewkes Paul T. Cappuccio Carol A. Melton Chairman of the Board and CEO Executive Vice President Executive Vice President, and General Counsel Global Public Policy John K. Martin, Jr. Executive Vice President and CFO Patricia Fili-Krushel Olaf J. Olafsson Executive Vice President, Executive Vice President Edward I. Adler Administration Executive Vice President, Corporate Communications TIME WARNER SENIOR OPERATING EXECUTIVES Tim Armstrong Barry M. Meyer Bill Nelson Chairman and CEO, Chairman and CEO, Chairman and CEO, AOL LLC Warner Bros. Entertainment Inc. Home Box Offifice, Inc. Philip I. Kent Ann S. Moore Chairman and CEO, Chairman and CEO, Turner Broadcasting System, Inc. Time Inc. TIME WARNER INC. INDEX TOCOMPANY INFORMATION Page Company Description.............................................................. 3 RiskFactors ..................................................................... 13 Management’s Discussion and Analysisof Results of Operations and Financial Condition . .......... 31 Consolidated Financial Statements: Consolidated Balance Sheet ....................................................... 93 Consolidated Statement of Operations . ............................................ 94 Consolidated Statement of Cash Flows . ............................................ 95 Consolidated Statement of Shareholders’ Equity ........................................ 96 Notes to Consolidated FinancialStatements . ........................................... 97 Management’s Report on Internal Control Over Financial Reporting ........................... 175 Reports of Independent Registered Public Accounting Firm .................................. 176 Selected Financial Information ....................................................... 178 Quarterly Financial Information ...................................................... 180 Comparison of Cumulative Total Returns . ............................................ 182 1 (Thispage intentionally left blank) 2 COMPANY DESCRIPTION Overview Time Warner Inc. (the “Company” or “Time Warner”), a Delaware corporation, is a leading media and entertainment company. As of December 31, 2008, the Company classifiedits business into the following five reporting segments: • AOL, consisting principallyofinteractive consumer and advertising services; • Cable, consisting principally of cable systems that provide video, high-speed data and voice services; •Filmed Entertainment, consisting principally offeature film, television andhome video production and distribution; • Networks, consisting principally of cabletelevision
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