Time Warner Impaired By $25 Billion
Impairment Charge Tied To Time Warner Cable Franchise Rights
By Mike Farrell -- Multichannel News, 1/7/2009 4:24:00 AM
Time Warner said Wednesday that it would incur a $25 billion non-cash impairment charge in the fourth quarter, mostly tied to franchise rights at its Time Warner Cable unit.
In a statement, Time Warner said that it will write down about $15 billion in goodwill for Time Warner Cable, with the rest coming from its publishing and AOL segments. As a result, Time Warner expects that it will have an operating loss in 2008, compared to operating income of $8.9 billion in 2007.
Time Warner announced in May its intention to split off the cable unit. That transaction is expected to be completed sometime this year.
In a research note, Sanford Bernstein cable and satellite analyst Craig Moffett said the writedown is primarily because of the decline in Time Warner’s stock price in 2008. Time Warner stock declined 39.1% ($6.45 per share) in 2008. In his research note, Moffett noted that Time Warner Cable reported $38.9 billion in intangibles not subject to amortization, which are predominantly franchise rights. The $15 billion figure represents a 39% writedown.
While franchise impairments have historically been taken when the probability of renewal is in doubt, Moffett wrote that in this case, “the writedown appears to be purely an acknowledgement of prevailing market values.”
Time Warner stuck to its previous guidance of $5.5 billion in free cash flow for the year and said it expects an increase of cash provided by operations in 2008, compared to $8.5 billion in 2007. But the media giant said that operating income before depreciation and amortization should grow about 1% in 2008, compared to previous guidance of 5% OIBDA growth.
Time Warner stock was down 75 cents each (6.8%) to $10.23 per share in early trading Wednesday. The company is scheduled to report fourth quarter results on Feb. 4.
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