Time Warner Inc. Reports Results for 2005 Full Year and Fourth Quarter

Chairman and Chief Executive Officer Dick Parsons said: "I'mpleased with our Company's 2005 financial performance that drewstrength from across our businesses -- led by double-digit gains atour Cable and Networks segments. We achieved all of our full-yearfinancial objectives, and each of our businesses made significantprogress against its respective operating and competitive goals. In2005, our film studios combined to top the domestic and global boxoffices as well as U.S. home video sales; TNT and TBS continued tolead their competitors in key audiences; and Time Inc. again rankedfirst in U.S. magazine advertising. Time Warner Cable set new recordsin its video, data and voice subscription growth for the year, whilewe made important strategic progress at AOL. At the same time, wecontinued to allocate our capital to targeted high-growth, strategicopportunities inside and outside the Company, including our $12.5billion stock repurchase plan."

Mr. Parsons continued: "Our scale and closely related,industry-leading businesses give Time Warner significant competitiveadvantages and strategic flexibility in today's rapidly changingenvironment. In the coming year, we'll continue to derive real valuefrom our unique opportunities and deliver on our top priority for ourshareholders: to provide a highly competitive near-term return whilebuilding sustainable value."

Full-Year Results

Revenues rose 4% over 2004 to $43.7 billion, reflecting increasesat the Company's Cable, Networks, Publishing and Filmed Entertainmentreporting segments.

Adjusted Operating Income before Depreciation and Amortizationclimbed to $10.7 billion, up 8% from $9.9 billion in the prior year,driven by double-digit growth at the Cable and Networks segments aswell as gains at the AOL and Publishing segments. Operating Incomedecreased to $4.5 billion in 2005 from $6.2 billion in 2004 -reflecting primarily the costs associated with securities litigation,offset partly by the growth in Adjusted Operating Income beforeDepreciation and Amortization.

Cash Provided by Operations amounted to $5.0 billion, and FreeCash Flow grew to $4.4 billion. As of December 31, Net Debt was $16.1billion, essentially flat compared to the beginning of 2005,reflecting payments made in connection with securities litigation andgovernment investigations, repurchases of common stock and dividends.

Diluted Income per Common Share before Discontinued Operations andCumulative Effect of Accounting Change was $0.62 for the year endedDecember 31, 2005, compared to $0.68 in 2004. The current and prioryear amounts included certain items affecting comparability that aredescribed in detail in the Consolidated Reported Net Income and PerShare Results section below. The net impact of such items was todecrease the current year results by $0.18 and the prior year resultsby $0.01 per diluted common share.

Fourth-Quarter Results

Revenues climbed 7% over the same period in 2004 to $11.9 billion,driven by increases at the Filmed Entertainment, Cable, Networks andPublishing segments.

Adjusted Operating Income before Depreciation and Amortizationrose 18% to $2.9 billion, reflecting double-digit increases at theNetworks, Filmed Entertainment, Cable and Publishing segments.Operating Income improved 37% to $2.2 billion.

Diluted Income per Common Share before Discontinued Operations andCumulative Effect of Accounting Change was $0.29 for the three monthsended December 31, 2005, compared to $0.24 in last year's fourthquarter. The current and prior year amounts included certain itemsaffecting comparability that are described in detail in theConsolidated Reported Net Income and Per Share Results section below.The net impact of such items was to increase both the current andprior year results by $0.04 per diluted common share.

Update on $12.5 Billion Stock Repurchase Program

The Board of Directors last year authorized a $12.5 billion stockrepurchase program that is scheduled to run to August 2007.

From inception through January 31, 2006, the Company hasrepurchased approximately 167 million shares of common stock forapproximately $3.0 billion.

Purchases for the stock repurchase program may be made from timeto time on the open market and in privately negotiated transactions.Size and timing of these purchases will be based on such factors asprice and business and market conditions.

Performance of Segments

The schedules below reflect Time Warner's performance for thethree months and full year ended December 31, by line of business (inmillions):
Three and Twelve Months Ended December 31:

Three Months Ended Twelve Months Ended
December 31, December 31,
Revenues: 2005 2004 2005 2004
------- ------- ------- -------
AOL $ 2,012 $ 2,183 $ 8,283 $ 8,692
Cable 2,500 2,204 9,498 8,484
Filmed Entertainment 3,624 3,272 11,924 11,853
Networks 2,439 2,293 9,611 9,054
Publishing 1,727 1,638 5,846 5,565
Intersegment Eliminations (415) (481) (1,510) (1,559)
------- ------- ------- -------
Total Revenues $11,887 $11,109 $43,652 $42,089
======= ======= ======= =======

Adjusted Operating Income before Depreciation and Amortization(a):

AOL(b) $ 342 $ 326 $ 1,913 $ 1,762
Cable 985 887 3,652 3,278
Filmed Entertainment(c) 402 284 1,284 1,474
Networks(d) 811 663 2,999 2,701
Publishing(e) 448 405 1,251 1,188
Corporate(f)(g) (136) (116) (430) (484)
Intersegment Eliminations 19 (18) (7) (22)
------- ------- ------- -------
Total Adjusted Operating
Income before Depreciation
and Amortization(a) $ 2,871 $ 2,431 $10,662 $ 9,897
======= ======= ======= =======

Operating Income:
AOL(b) $ 174 $ 120 $ 1,168 $ 934
Cable 555 497 1,988 1,764
Filmed Entertainment(c) 307 201 943 1,157
Networks(d) 741 602 2,738 2,461
Publishing(e) 392 341 1,028 934
Corporate(f)(g) (148) (127) (474) (527)
Legal recoveries/(expenses)(h) 160 (13) (2,865) (536)
Intersegment Eliminations 19 (18) (7) (22)
------- ------- ------- -------
Total Operating Income $ 2,200 $ 1,603 $ 4,519 $ 6,165
======= ======= ======= =======

(a) Adjusted Operating Income before Depreciation and Amortization
excluded the impact of noncash impairments of goodwill, intangible
and fixed assets, as well as gains and losses on asset sales and
amounts related to securities litigation and government
investigations. Refer to the reconciliations of Adjusted Operating
Income before Depreciation and Amortization to Operating Income
before Depreciation and Amortization on pages 15 and 16. Operating
Income included these items in their respective periods.

(b) For the twelve months ended December 31, 2005, Adjusted Operating
Income before Depreciation and Amortization excluded a noncash
goodwill impairment charge of $24 million related to America
Online Latin America, Inc., a $5 million gain related to the sale
of a building and a $5 million gain related to the 2004 sale of
Netscape Security Solutions; for the three and twelve months ended
December 31, 2004, Adjusted Operating Income before Depreciation
and Amortization excluded a $7 million gain on the sale of
Netscape Security Solutions; for the twelve months ended December
31, 2004, Adjusted Operating Income before Depreciation and
Amortization excluded a $13 million gain on the sale of AOL Japan
and a noncash impairment charge of $10 million related to a
building that was held for sale. Operating Income included these
amounts in their respective periods.

(c) For the three and twelve months ended December 31, 2005, Adjusted
Operating Income before Depreciation and Amortization excluded a
$5 million gain related to the sale of a property in California at
Filmed Entertainment. Operating Income included this amount in
both periods.

(d) For the twelve months ended December 31, 2004, Adjusted Operating
Income before Depreciation and Amortization excluded a loss of
approximately $7 million related to the sale of the winter sports
teams. Operating Income included this amount in the period.

(e) For the twelve months ended December 31, 2005, Adjusted Operating
Income before Depreciation and Amortization excluded an $8 million
gain related to the collection of a loan made in conjunction with
the Company's 2003 sale of Time Life Inc., which was previously
fully reserved due to concerns about recoverability; for the
twelve months ended December 31, 2004, Adjusted Operating Income
before Depreciation and Amortization excluded an $8 million gain
related to the sale of a building. Operating Income included these
items in their respective periods.

(f) For the three and twelve months ended December 31, 2005, Adjusted
Operating Income before Depreciation and Amortization excluded
$160 million in net recoveries and $2.9 billion in net expenses,
respectively, related to securities litigation and government
investigations; for the three and twelve months ended December 31,
2004, Adjusted Operating Income before Depreciation and
Amortization excluded $13 million and $536 million, respectively,
in net expenses related to securities litigation and government
investigations.

(g) For the twelve months ended December 31, 2004, Adjusted Operating
Income before Depreciation and Amortization and Operating Income
included $53 million of costs associated with the relocation from
the Company's former corporate headquarters, of which
approximately $4 million was reversed in the twelve months ended
December 31, 2005, as updated estimates indicated they would no
longer be incurred.

(h) Represented amounts related to securities litigation and
government investigations. For segment reporting purposes in the
Company's financial statements, amounts are reflected in the
results of the Corporate segment. For the three and twelve months
ended December 31, 2005, amounts included $160 million in net
recoveries and $2.9 billion in net expenses, respectively, related
to securities litigation and government investigations. For the
three and twelve months ended December 31, 2004, amounts included
$13 million and $536 million, respectively, in net expenses
related to securities litigation and government investigations.

Presented below is a discussion of Time Warner's segments for thefourth quarter and full year 2005. Unless otherwise noted, the dollaramounts in parentheses represent year-over-year changes.

AOL (America Online)

Full-Year Results

Revenues declined 5% ($409 million) to $8.3 billion, reflecting a10% decrease ($722 million) in Subscription revenues, offset in partby a 33% increase ($333 million) in Advertising revenues. Driving thegrowth in Advertising revenues were higher revenues fromAdvertising.com ($162 million), which was acquired on August 2, 2004,as well as a 35% rise ($116 million) in paid search and an increase intraditional advertising. The decline in Subscription revenues was dueto a decrease in domestic AOL brand members as well as unfavorablechanges in the price plan mix of AOL brand subscribers.

Adjusted Operating Income before Depreciation and Amortizationclimbed 9% ($151 million) to $1.9 billion, benefiting from reductionsin network ($485 million) and marketing expenses, as well as higherAdvertising revenues, offset partially by lower domestic Subscriptionrevenues. The current and prior year periods reflected netrestructuring charges of $10 million and $50 million, respectively.

Operating Income grew 25% ($234 million) to $1.2 billion, due tothe increase in Adjusted Operating Income before Depreciation andAmortization as well as lower depreciation expense ($105 million).

Fourth-Quarter Results

Revenues decreased 8% ($171 million) to $2.0 billion. AdjustedOperating Income before Depreciation and Amortization rose 5% ($16million) to $342 million. The current and prior year quartersreflected restructuring charges of $15 million and $52 million,respectively. The 2004 period also included a $56 million reservereversal related to the extension of the moratorium on Internet salestaxes (Internet Tax Nondiscrimination Act). This reversal had nomeaningful full-year impact, as the reserve was primarily accruedearlier in 2004. Operating Income grew 45% ($54 million) to $174million, benefiting from the increase in Adjusted Operating Incomebefore Depreciation and Amortization as well as lower depreciation($33 million) and amortization ($12 million) expenses.

Highlights

As of December 31, 2005, the AOL service totaled 19.5 million U.S.members, a decline of 625,000 from the prior quarter and 2.8 millionfrom the year-ago quarter. In Europe, the AOL service had 6.0 millionmembers, a decrease of 108,000 from the previous quarter and a declineof 287,000 from last year's quarter.

During the fourth quarter, AOL had 109 million average monthlydomestic unique visitors and 54 billion page views, according tocomScore Media Metrix, which translates into 164 average monthly pageviews per unique visitor.

CABLE (Time Warner Cable)

Full-Year Results

Revenues rose 12% ($1.0 billion) to $9.5 billion, representing a12% increase ($995 million) in Subscription revenues and a 4% climb($19 million) in Advertising revenues. Subscription revenues benefitedfrom a 22% increase ($385 million) in high-speed data revenues,significant growth in Digital Phone revenues ($253 million) and an 18%rise ($121 million) in enhanced digital video revenues as well ashigher basic cable rates. Average monthly revenue per basic cablesubscriber climbed 12% to approximately $85.

Operating Income before Depreciation and Amortization increased11% ($374 million) to $3.7 billion, due to the growth in Revenues,offset in part by a 10% rise in programming expenses ($195 million)and higher general operating expenses for new services. The currentyear includes merger-related and restructuring charges of $42 million.The prior year included legal settlement costs of $34 million relatedto Urban Cable.

Operating Income climbed 13% ($224 million) to $2.0 billion,reflecting the increase in Operating Income before Depreciation andAmortization, offset partly by higher depreciation expense ($150million).

Fourth-Quarter Results

Revenues rose 13% ($296 million) to $2.5 billion. Operating Incomebefore Depreciation and Amortization grew 11% ($98 million) to $985million. The fourth quarter included a 6% ($28 million) increase inprogramming expenses, which reflected a net benefit of approximately$25 million primarily associated with changes in programming estimates(a portion of which were accrued earlier in 2005). The quarter alsoincluded $9 million of merger-related and restructuring charges.Operating Income climbed 12% ($58 million) to $555 million, offsetpartly by higher depreciation expense ($41 million).

Subscriber Update

As of December 31, 2005, Time Warner Cable managed nearly 11.0million basic video cable subscribers, which included approximately1.6 million subscribers in unconsolidated joint ventures. Basic videocable subscribers climbed 34,000 from the prior quarter (the highestfourth-quarter growth since 2002) and 73,000 from the year-agoquarter. Digital video subscribers grew 199,000 in the quarter (thelargest fourth-quarter increase since 2002) and 595,000 in the fullyear for a total of 5.4 million, representing 49% of basic video cablesubscribers. Digital Video Recorder subscribers rose 219,000 duringthe quarter (the largest quarterly increase ever) and 621,000 for thefull year to 1.5 million subscribers, serving 27% of digital videocustomers.

Residential high-speed data subscribers grew by 265,000 during thequarter and 909,000 in the full year for a total of 4.8 million,representing 25% of service-ready homes passed. This marks the largestfourth-quarter increase since 2002, and it is the fourth consecutivequarter in which net residential high-speed data subscriber additionssurpassed 200,000. Digital Phone subscribers climbed 246,000 in thequarter (the largest quarterly increase ever) and 880,000 in the fullyear for a total of 1.1 million, representing 7% of eligible homespassed.

FILMED ENTERTAINMENT (Warner Bros. Entertainment & New LineCinema)

Full-Year Results

Revenues increased 1% ($71 million) to $11.9 billion. The currentyear benefited from growth in home video revenue from televisionproduct, record international television distribution results atWarner Bros. and a strong domestic theatrical slate. These items morethan offset difficult comparisons to the prior year's industry recordinternational theatrical performance at Warner Bros., which includedHarry Potter and the Prisoner of Azkaban, Troy and The Last Samurai,as well as higher international overages from New Line's The Lord ofthe Rings trilogy and higher domestic network and syndication revenuesfrom episodic television properties, most notably Friends, The DrewCarey Show and Seinfeld, in the prior year.

Adjusted Operating Income before Depreciation and Amortizationdecreased 13% ($190 million) to $1.3 billion. This decline is due todifficult comparisons to the prior year contributions from The Lord ofthe Rings trilogy, domestic television syndication results and theinternational theatrical slate. The current year includesrestructuring charges of $33 million.

Operating Income declined 18% ($214 million) to $943 million, dueto the decrease in Adjusted Operating Income before Depreciation andAmortization as well as higher depreciation and amortization expenses.

Fourth-Quarter Results

Revenues climbed 11% ($352 million) to $3.6 billion. AdjustedOperating Income before Depreciation and Amortization grew 42% ($118million) to $402 million. The current year quarter reflectedrestructuring charges of $33 million. Operating Income rose 53% ($106million) to $307 million, driven by higher Adjusted Operating Incomebefore Depreciation and Amortization, offset partially by increases inamortization and depreciation expenses.

Achievements

For the fifth consecutive year, Time Warner's studios combined forthe #1 position in global box office. In domestic box office, TimeWarner's studios captured an industry-leading share of 21.7% in 2005,with four films each generating more than $200 million in domestic boxoffice receipts - Warner Bros.' Harry Potter and the Goblet of Fire,Charlie and the Chocolate Factory and Batman Begins as well as NewLine's Wedding Crashers.

Warner Bros. Pictures earned first place in both the domestic($1.4 billion) and international ($1.9 billion) box offices in 2005.Internationally, Warner Bros. Pictures has grossed over a billiondollars a year for five years in a row and led in international boxoffice in four of the past five years.

Warner Home Video ranked #1 for the fifth consecutive year,garnering an industry-leading 21.4% share of home video sales in theU.S. Notable 2005 home video releases included Warner Bros.' The PolarExpress, Batman Begins, Charlie and the Chocolate Factory, Troy andOcean's Twelve and New Line's The Notebook and Monster-in-Law.

At the 63rd Annual Golden Globe Awards, Warner Bros. Picturesreceived the Best Supporting Actor award for George Clooney'sperformance in Syriana, and Warner Independent Pictures' Paradise Nowwas named the Best Foreign Language Film.

Among the nominations for the 78th Annual Academy Awards are sixfor Warner Independent Pictures' Good Night, And Good Luck, as well asone each for March of the Penguins and Paradise Now. At Warner Bros.Pictures, Batman Begins, Charlie and the Chocolate Factory, HarryPotter and the Goblet of Fire, North Country, Syriana and Tim Burton'sCorpse Bride all garnered nominations. And New Line's A History ofViolence and The New World received a total of three nominations.

NETWORKS (Turner Broadcasting, HBO & The WB Network)

Full-Year Results

Revenues rose 6% ($557 million) to $9.6 billion, benefiting fromgrowth in Subscription, Advertising and Content revenues. Subscriptionrevenues climbed 7% ($347 million), due to higher rates and, to alesser extent, increased subscribers at Turner and HBO. Thesesubscription gains were offset in part by the lower net effect ofresolving certain contractual agreements ($22 million in the currentyear compared to approximately $50 million last year). The 7% growth($191 million) in Advertising revenues included an 11% rise at theTurner networks, offset partly by a 9% decline at The WB Network.Content revenues climbed 4% ($41 million), due mainly to higherancillary sales of HBO's original programming, offset in part by lowerlicensing revenue associated with fewer episodes of Everybody LovesRaymond and the absence of revenue ($22 million) from Turner's wintersports teams and arena, which were sold in the first quarter of 2004.

Adjusted Operating Income before Depreciation and Amortizationgrew 11% ($298 million) to $3.0 billion, reflecting higherSubscription, Advertising and Content revenues, offset partially by anincrease in programming expenses ($101 million), due to higher costsfor original series and sports rights at Turner and a rise in overallgeneral operating expenses. The current year includes restructuringcharges of $4 million. The prior year included a $75 million benefitrelated to bad debt reserve reversals associated with the Adelphiabankruptcy.

Operating Income climbed 11% ($277 million) to $2.7 billion,benefiting from the increase in Adjusted Operating Income beforeDepreciation and Amortization, offset partially by higher depreciationexpense.

Fourth-Quarter Results

Revenues grew 6% ($146 million) to $2.4 billion. Operating Incomebefore Depreciation and Amortization climbed 22% ($148 million) to$811 million. The current year quarter reflected restructuring chargesof $4 million. Operating Income rose 23% ($139 million) to $741million, reflecting the increase in Operating Income beforeDepreciation and Amortization, offset in part by higher depreciationexpense.

Achievements

For the year, TNT was the leader in adults 18-49 and adults 25-54in prime-time and total day - setting new advertising-supported cablerecords in both categories for the best ever annual delivery. In 2005,TBS ranked #1 in prime-time delivery among adults 18-34 and aired thefour top comedies on advertising-supported cable among adults 18-49 -Sex and the City, Everybody Loves Raymond, Seinfeld and Friends. Inits first year as an individually rated network, Adult Swim led intotal day delivery among adults 18-34. No advertising-supported cablenetwork has ever delivered as many adult 18-34 viewers.

HBO earned three Golden Globe awards in 2006, with two for EmpireFalls and one for Lackawanna Blues. HBO earned three Academy Awardnominations for The Death of Kevin Carter: Casualty of the Bang BangClub, The Mushroom Club and The Moon and the Son: An ImaginedConversation.

PUBLISHING (Time Inc.)

Full-Year Results

Revenues were up 5% ($281 million) to $5.8 billion, reflecting a5% increase ($134 million) in Advertising revenues and an 18% climb($99 million) in Content revenues, driven by Time Warner Book Group.Advertising revenues benefited from the acquisitions of Essence andGrupo Editorial Expansion, higher contributions from recent magazinelaunches, led by Life, and strength at Real Simple and People, offsetpartially by lower revenues at certain magazines, including SportsIllustrated and Time.

Adjusted Operating Income before Depreciation and Amortizationrose 5% ($63 million) to $1.3 billion, due primarily to growth at TimeWarner Book Group, Synapse and Real Simple, offset in part byrestructuring charges of $28 million, a decline at Time and greaterstart-up losses ($12 million).

Operating Income climbed 10% ($94 million) to $1.0 billion,benefiting from the increase in Adjusted Operating Income beforeDepreciation and Amortization and lower amortization expense ($41million).

Fourth-Quarter Results

Revenues increased 5% ($89 million) to $1.7 billion. OperatingIncome before Depreciation and Amortization rose 11% ($43 million) to$448 million. The current year quarter reflected restructuring chargesof $28 million. Operating Income climbed 15% ($51 million) to $392million, driven by the increase in Operating Income beforeDepreciation and Amortization and lower amortization expense.

Achievements

Based on Publishers Information Bureau (PIB) data, Time Inc.'s2005 industry-leading share of overall domestic advertising was 23.4%,exclusive of newspaper supplements.

People was named Advertising Age's 2005 "Magazine of the Year,"with Real Simple ranked second. (Real Simple has made the list fourstraight years.)

IPC Media's Pick Me Up won the British Society of MagazineEditors' Launch of the Year award. This is the second year in a rowIPC received this award (Nuts in 2004).

Time Warner Book Group added 16 titles to the New York Timesbestseller list this quarter - with seven titles at #1, includingJames Patterson's Mary, Mary, Nicholas Sparks' At First Sight, MichaelConnelly's The Lincoln Lawyer and Joel Osteen's Your Best Life Now -bringing the 2005 total to a record 69 titles.

Consolidated Reported Net Income and Per Share Results

Full-Year Results

For the year ended December 31, 2005, the Company reported NetIncome of $2.9 billion, or $0.62 per diluted common share. Thiscompares to 2004 Net Income of $3.4 billion, or $0.72 per dilutedcommon share.

For the year ended December 31, 2005, the Company reported Incomebefore Discontinued Operations and Cumulative Effect of AccountingChange of $2.9 billion, or $0.62 per diluted common share. Thiscompares to Income before Discontinued Operations and CumulativeEffect of Accounting Change in 2004 of $3.2 billion, or $0.68 perdiluted common share.

Certain pre-tax items in the current year affected comparability,including $2.9 billion in net expenses related to securitieslitigation and government investigations, a $24 million impairmentrelated to AOL Latin America and a $13 million writedown on aninvestment in NTV, offset in part by a $53 million gain related to anincrease in fair value of the option in Warner Music Group, an $8million gain related to the collection of a loan made in conjunctionwith the Company's 2003 sale of Time Life, a $5 million gain on thesale of a building at AOL and a $5 million gain related to the sale ofAmerica Online's Netscape Security Solutions business, as well as a $5million gain on the sale of a property in California at FilmedEntertainment. The current year also included a $925 million gain onthe sale of an investment in Google, a $44 million gain related to thesale of an investment in Columbia House and $55 million in other netinvestment gains. In addition, the current year's income tax provisionbenefited from $481 million related to certain state tax law changesand state tax methodologies and the recognition of net capital losscarryforwards.

Certain items in the prior year similarly affected comparability,including $536 million in net expenses related to securitieslitigation and government investigations, a $10 million impairmentrelated to the sale of a building at America Online and an approximate$7 million loss on the sale of Turner's winter sports teams, offset inpart by a $50 million gain related to an increase in fair value of theoption in Warner Music Group and gains of $13 million, $8 million and$7 million on the sales of AOL Japan, a Time Inc. building, andAmerica Online's Netscape Security Solutions business, respectively.The prior year also reflected $424 million in pre-tax net investmentgains, which included $188 million, $113 million and $44 millionrelated to the sale of investments in Google, VIVA and Gateway,respectively, as well as a $110 million tax benefit associated withthe realization of net capital loss carryforwards.

In aggregate, the items noted above had the net effect ofdecreasing the current year's Income before Discontinued Operationsand Cumulative Effect of Accounting Change by $849 million (net oftaxes), or $0.18 per diluted common share, and decreasing the previousyear's Income before Discontinued Operations and Cumulative Effect ofAccounting Change by $33 million (net of taxes), or $0.01 per dilutedcommon share. Excluding such items, the growth in Income beforeDiscontinued Operations and Cumulative Effect of Accounting Change andDiluted Income per Common Share before Discontinued Operations andCumulative Effect of Accounting Change was driven primarily by anincrease in Operating Income and lower interest expense, offset partlyby a higher tax provision.

Fourth-Quarter Results

For the three months ended December 31, 2005, the Company reportedNet Income of $1.4 billion, or $0.29 per diluted common share. Thiscompares to Net Income in the 2004 comparable quarter of $1.1 billion,or $0.24 per diluted common share.

For the three months ended December 31, 2005, the Company reportedIncome before Discontinued Operations and Cumulative Effect ofAccounting Change of $1.4 billion, or $0.29 per diluted common share.This compares to Income before Discontinued Operations and CumulativeEffect of Accounting Change in 2004 of $1.1 billion, or $0.24 perdiluted common share.

Certain pre-tax items in the current year affected comparability,including $160 million in net recoveries related to securitieslitigation and government investigations, a $5 million gain on thesale of a property in California at Filmed Entertainment and a $108million benefit in the tax provision related to changes in state taxmethodologies and the recognition of net capital loss carryforwards,offset in part by $4 million in net investment losses.

Certain items in the prior year quarter similarly affectedcomparability, including $82 million in net investment gains (dueprimarily to a $44 million gain on the sale of the Gatewayinvestment), a $50 million gain related to an increase in fair valueof the option in Warner Music Group and a $7 million gain on the saleof America Online's Netscape Security Solutions business, offsetpartly by $13 million in net expenses related to securities litigationand government investigations. The prior year quarter's amount alsoincluded a $110 million tax benefit associated with the realization ofnet capital loss carryforwards.

In aggregate, the items noted above had the net effect ofincreasing the current year quarter's Income before DiscontinuedOperations and Cumulative Effect of Accounting Change by $206 million(net of taxes), or $0.04 per diluted common share, and increasing theprevious year period's Income before Discontinued Operations andCumulative Effect of Accounting Change by $183 million (net of taxes),or $0.04 per diluted common share. Excluding such items, the growth inIncome before Discontinued Operations and Cumulative Effect ofAccounting Change and Diluted Income per Common Share beforeDiscontinued Operations and Cumulative Effect of Accounting Change wasdriven primarily by an increase in Operating Income and lower interestexpense, offset partly by a higher tax provision.

Use of Operating Income before Depreciation and Amortization,Adjusted Operating Income before Depreciation and Amortization andFree Cash Flow

During the fourth quarter of 2005, the Company revised itsdefinitions of Adjusted Operating Income before Depreciation andAmortization and Free Cash Flow to exclude all of the amountsassociated with the securities litigation and SEC/DOJ governmentinvestigations. In addition to legal reserves that have beenpreviously excluded, Adjusted Operating Income before Depreciation andAmortization now excludes legal and professional expenses andinsurance recoveries related to the securities litigation andgovernment investigations. Similarly, in addition to payments relatedto securities litigation that have been previously excluded, Free CashFlow now excludes legal and professional expenses and insurancerecoveries related to the securities litigation and governmentinvestigations and payments for settlements related to the governmentinvestigations. These revised definitions have been applied for allperiods presented.

The Company utilizes Operating Income before Depreciation andAmortization, among other measures, to evaluate the performance of itsbusinesses. The Company also evaluates the performance of itsbusinesses using Operating Income before Depreciation and Amortizationexcluding the impact of noncash impairments of goodwill, intangibleand fixed assets, as well as gains and losses on asset sales andamounts related to securities litigation and government investigations(referred to herein as Adjusted Operating Income before Depreciationand Amortization). Both Operating Income before Depreciation andAmortization and Adjusted Operating Income before Depreciation andAmortization are considered important indicators of the operationalstrength of the Company's businesses. Operating Income beforeDepreciation and Amortization eliminates the uneven effect across allbusiness segments of considerable amounts of noncash depreciation oftangible assets and amortization of certain intangible assets thatwere recognized in business combinations. A limitation of thismeasure, however, is that it does not reflect the periodic costs ofcertain capitalized tangible and intangible assets used in generatingrevenues in the Company's businesses. Moreover, Adjusted OperatingIncome before Depreciation and Amortization does not reflect gains andlosses on asset sales or amounts related to securities litigation andgovernment investigations or any impairment charge related togoodwill, intangible assets and fixed assets. Management evaluates theinvestments in such tangible and intangible assets through otherfinancial measures, such as capital expenditure budgets, investmentspending levels and return on capital.

Free Cash Flow is Cash Provided by Operations (as defined by U.S.generally accepted accounting principles) plus payments related tosecurities litigation and government investigations (net of anyinsurance recoveries), less cash flow attributable to discontinuedoperations, capital expenditures and product development costs,principal payments on capital leases, and partnership distributions,if any. The Company uses Free Cash Flow to evaluate the performance ofits businesses and this measure is considered an important indicatorof the Company's liquidity, including its ability to reduce net debt,make strategic investments, pay dividends to common shareholders andrepurchase stock. A limitation of this measure, however, is that itdoes not reflect payments made in connection with the securitieslitigation and government investigations, which reduce liquidity.

Operating Income before Depreciation and Amortization, AdjustedOperating Income before Depreciation and Amortization and Free CashFlow should be considered in addition to, not as a substitute for, theCompany's Operating Income, Net Income and various cash flow measures(e.g., Cash Provided by Operations), as well as other measures offinancial performance and liquidity reported in accordance with U.S.generally accepted accounting principles.

About Time Warner Inc.

Time Warner Inc. is a leading media and entertainment company,whose businesses include interactive services, cable systems, filmedentertainment, television networks and publishing.

Information on Business Outlook Release and Earnings ConferenceCall

Time Warner Inc. issued a separate release today regarding its2006 full-year business outlook.

The Company's earnings conference call can be heard live at 8:30am ET on Wednesday, February 1, 2006. To listen to the call, visitwww.timewarner.com/investors or AOL Keyword: IR.

Caution Concerning Forward-Looking Statements

This document includes certain forward-looking statements withinthe meaning of the Private Securities Litigation Reform Act of 1995.These statements are based on management's current expectations orbeliefs, and are subject to uncertainty and changes in circumstances.Actual results may vary materially from those expressed or implied bythe statements herein due to changes in economic, business,competitive, technological and/or regulatory factors, and otherfactors affecting the operation of the businesses of Time Warner Inc.More detailed information about these factors may be found in filingsby Time Warner with the Securities and Exchange Commission, includingits most recent Annual Report on Form 10-K and Quarterly Report onForm 10-Q. Time Warner is under no obligation to, and expresslydisclaims any such obligation to, update or alter its forward-lookingstatements, whether as a result of new information, future events, orotherwise.
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)

December 31, December 31,
2005 2004
-------------- ---------------
(millions, except
per share amounts)

ASSETS

Current assets
Cash and equivalents $ 4,220 $ 6,139
Restricted cash -- 150
Receivables, less allowances of
$2.225 and $2.109 billion 6,411 5,512
Inventories 1,806 1,737
Prepaid expenses and other current
assets 1,026 920
-------------- --------------
Total current assets 13,463 14,458
Noncurrent inventories and film costs 4,916 4,415
Investments, including available-for-
sale securities 3,518 4,703
Property, plant and equipment, net 13,676 13,094
Intangible assets subject to
amortization, net 3,522 3,892
Intangible assets not subject to
amortization 39,813 39,656
Goodwill 40,416 39,667
Other assets 3,151 3,273
-------------- --------------
Total assets $ 122,475 $ 123,158
============== ==============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities
Accounts payable $ 1,380 $ 1,339
Participations payable 2,426 2,452
Royalties and programming costs payable 1,074 1,018
Deferred revenue 1,473 1,653
Debt due within one year 92 1,672
Other current liabilities 6,100 6,468
Current liabilities of discontinued
operations 43 50
-------------- --------------
Total current liabilities 12,588 14,652
Long-term debt 20,238 20,703
Deferred income taxes 15,138 14,943
Deferred revenue 681 749
Mandatorily convertible preferred stock -- 1,500
Other liabilities 5,324 4,288
Noncurrent liabilities of discontinued
operations 7 38
Minority interests 5,784 5,514

Shareholders' equity
Series LMCN-V common stock, $0.01 par
value, 87.2 and 105.7 million shares
outstanding 1 1
Time Warner common stock, $0.01 par
value, 4.498 and 4.483 billion shares
outstanding 45 45
Paid-in-capital 155,927 156,252
Accumulated other comprehensive
income, net (64) 106
Accumulated deficit (93,194) (95,633)
-------------- --------------
Total shareholders' equity 62,715 60,771
-------------- --------------
Total liabilities and shareholders'
equity $ 122,475 $ 123,158
============== ==============

Note: Certain reclassifications have been made to the prior year's
financial information to conform to the December 31, 2005
presentation.


See accompanying notes.


TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)

Three Months Ended Year Ended
December 31, December 31,
------------------- -------------------
2005 2004 2005 2004
--------- --------- --------- ---------
(millions, except per share amounts)

Revenues:
Subscription $ 5,577 $ 5,437 $ 22,222 $ 21,605
Advertising 2,169 2,016 7,612 6,955
Content 3,778 3,348 12,615 12,350
Other 363 308 1,203 1,179
--------- --------- --------- ---------
Total revenues 11,887 11,109 43,652 42,089
Costs of revenues (6,772) (6,490) (25,075) (24,449)
Selling, general and
administrative (2,840) (2,799) (10,478) (10,274)
Amortization of intangible
assets (151) (159) (597) (626)
Amounts related to
securities litigation and
government investigations 160 (13) (2,865) (536)
Merger-related and
restructuring costs (89) (52) (117) (50)
Asset impairments -- -- (24) (10)
Gains on disposal of assets,
net 5 7 23 21
--------- --------- --------- ---------
Operating income 2,200 1,603 4,519 6,165
Interest expense, net (314) (374) (1,266) (1,533)
Other income, net 15 153 1,124 521
Minority interest expense,
net (83) (74) (285) (246)
--------- --------- --------- ---------
Income before income taxes,
discontinued operations and
cumulative effect of
accounting change 1,818 1,308 4,092 4,907
Income tax provision (452) (187) (1,187) (1,698)
--------- --------- --------- ---------
Income before discontinued
operations and cumulative
effect of accounting change 1,366 1,121 2,905 3,209
Discontinued operations, net
of tax -- 6 -- 121
--------- --------- --------- ---------
Income before cumulative
effect of accounting change 1,366 1,127 2,905 3,330
Cumulative effect of
accounting change, net of
tax -- -- -- 34
--------- --------- --------- ---------
Net income $ 1,366 $ 1,127 $ 2,905 $ 3,364
========= ========= ========= =========
Basic income per common
share before discontinued
operations and cumulative
effect of accounting
change $ 0.29 $ 0.24 $ 0.62 $ 0.70
Discontinued operations -- 0.01 -- 0.03
Cumulative effect of
accounting change -- -- -- 0.01
--------- --------- --------- ---------
Basic net income per common
share $ 0.29 $ 0.25 $ 0.62 $ 0.74
========= ========= ========= =========
Average basic common shares 4,635.3 4,576.4 4,648.2 4,560.2
========= ========= ========= =========
Diluted income per common
share before discontinued
operations and cumulative
effect of accounting
change $ 0.29 $ 0.24 $ 0.62 $ 0.68
Discontinued operations -- -- -- 0.03
Cumulative effect of
accounting change -- -- -- 0.01
--------- --------- --------- ---------
Diluted net income per
common share $ 0.29 $ 0.24 $ 0.62 $ 0.72
========= ========= ========= =========
Average diluted common
shares 4,672.1 4,706.8 4,710.0 4,694.7
========= ========= ========= =========

Cash dividends declared per
share of common stock $ 0.05 $ -- $ 0.10 $ --
========= ========= ========= =========

Note: Certain reclassifications have been made to the prior year's
financial information to conform to the December 31, 2005
presentation.


See accompanying notes.


TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended December 31,
(Unaudited)

2005 2004
------------- -------------
OPERATIONS (millions)
Net income(a) $ 2,905 $ 3,364
Adjustments for noncash and
nonoperating items:
Cumulative effect of accounting
change, net of tax -- (34)
Depreciation and amortization 3,277 3,207
Amortization of film costs 3,513 3,547
Asset impairments 25 10
Gain on investments and other
assets, net (1,086) (432)
Equity in (income) losses of
investee companies, net of cash
distributions (14) 20
Legal reserves related to securities
litigation and government
investigations 111 300
Changes in operating assets and
liabilities, net of acquisitions (3,756) (3,366)
Adjustments relating to discontinued
operations (10) 2
------------- -------------
Cash provided by operations(b)(c) 4,965 6,618
------------- -------------

INVESTING ACTIVITIES
Investments and acquisitions, net of
cash acquired (680) (877)
Capital expenditures and product
development costs (3,246) (3,024)
Investment proceeds from available-for-
sale securities 991 532
Other investment proceeds 439 2,866
------------- -------------
Cash used by investing activities (2,496) (503)
------------- -------------

FINANCING ACTIVITIES
Borrowings 6 1,320
Debt repayments (1,995) (4,523)
Proceeds from exercise of stock options 307 353
Principal payments on capital leases (118) (191)
Repurchases of common stock (2,141) --
Dividends paid (466) --
Other 19 25
------------- -------------
Cash used by financing activities (4,388) (3,016)
------------- -------------

INCREASE (DECREASE) IN CASH AND
EQUIVALENTS (1,919) 3,099
CASH AND EQUIVALENTS AT BEGINNING OF
PERIOD 6,139 3,040
------------- -------------
CASH AND EQUIVALENTS AT END OF PERIOD $ 4,220 $ 6,139
============= =============

(a) Includes net income from discontinued operations of $121 million
for the year ended December 31, 2004.

(b) 2005 includes $2.754 billion in payments related to securities
litigation and the government investigations. 2004 includes $236
million in payments related to securities litigation and the
government investigations.

(c) 2005 includes an approximate $36 million use of cash related to
changing the fiscal year end of certain international operations
from November 30 to December 31.

Note: Certain reclassifications have been made to the prior year's
financial information to conform to the December 31, 2005
presentation.


See accompanying notes.


TIME WARNER INC.
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION TO OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(millions, unaudited)

Three Months Ended December 31, 2005

Adjusted
Operating Amounts
Income/(Loss) Related
Before To Securities
Depreciation Litigation
And Asset & Government
Amortization Impairments Investigations
------------ ----------- --------------
AOL $ 342 $ - $ -
Cable 985 - -
Filmed Entertainment(a) 402 - -
Networks 811 - -
Publishing 448 - -
Corporate(b) (136) - 160
Intersegment elimination 19 - -
------------ ----------- --------------
Total $ 2,871 $ - $ 160
============ =========== ==============

Operating
Income/(Loss)
Gains/ Before
(Losses) Depreciation
From Asset And
Disposals Amortization
----------- ------------
AOL $ - $ 342
Cable - 985
Filmed Entertainment(a) 5 407
Networks - 811
Publishing - 448
Corporate(b) - 24
Intersegment elimination - 19
----------- ------------
Total $ 5 $ 3,036
=========== ============

Three Months Ended December 31, 2004

Adjusted
Operating Amounts
Income/(Loss) Related
Before To Securities
Depreciation Litigation
And Asset & Government
Amortization Impairments Investigations
------------ ----------- --------------
AOL(c) $ 326 $ - $ -
Cable 887 - -
Filmed Entertainment 284 - -
Networks 663 - -
Publishing 405 - -
Corporate(b) (116) - (13)
Intersegment elimination (18) - -
------------ ----------- --------------
Total $ 2,431 $ - $ (13)
============ =========== ==============

Operating
Income/(Loss)
Gains/ Before
(Losses) Depreciation
From Asset And
Disposals Amortization
----------- ------------
AOL(c) $ 7 $ 333
Cable - 887
Filmed Entertainment - 284
Networks - 663
Publishing - 405
Corporate(b) - (129)
Intersegment elimination - (18)
----------- ------------
Total $ 7 $ 2,425
=========== ============

(a) For the three months ended December 31, 2005, Operating Income
before Depreciation and Amortization includes a $5 million gain
related to the sale of a property in California.

(b) For the three months ended December 31, 2005, Operating Income
before Depreciation and Amortization includes $160 million in net
recoveries related to securities litigation and government
investigations. For the three months ended December 31, 2004,
Operating Income before Depreciation and Amortization includes $13
million in net expenses related to securities litigation and
government investigations.

(c) For the three months ended December 31, 2004, Operating Income
before Depreciation and Amortization includes a gain of $7 million
related to the sale of Netscape Security Solutions ("NSS").


TIME WARNER INC.
RECONCILIATION OF ADJUSTED OPERATING INCOME BEFORE DEPRECIATION AND
AMORTIZATION TO OPERATING INCOME BEFORE DEPRECIATION AND AMORTIZATION
(millions, unaudited)

Year Ended December 31, 2005

Adjusted
Operating Amounts
Income/(Loss) Related
Before To Securities
Depreciation Litigation
And Asset & Government
Amortization Impairments Investigations
------------ ----------- --------------
AOL(a) $ 1,913 $ (24) $ -
Cable 3,652 - -
Filmed Entertainment(b) 1,284 - -
Networks 2,999 - -
Publishing(c) 1,251 - -
Corporate(d) (430) - (2,865)
Intersegment elimination (7) - -
------------ ----------- --------------
Total $ 10,662 $ (24) $ (2,865)
============ =========== ==============

Operating
Income/(Loss)
Gains/ Before
(Losses) Depreciation
From Asset And
Disposals Amortization
----------- ------------
AOL(a) $ 10 $ 1,899
Cable - 3,652
Filmed Entertainment(b) 5 1,289
Networks - 2,999
Publishing(c) 8 1,259
Corporate(d) - (3,295)
Intersegment elimination - (7)
----------- ------------
Total $ 23 $ 7,796
=========== ============

Year Ended December 31, 2004

Adjusted
Operating Amounts
Income/(Loss) Related
Before To Securities
Depreciation Litigation
And Asset & Government
Amortization Impairments Investigations
------------ ----------- --------------
AOL(a) $ 1,762 $ (10) $ -
Cable 3,278 - -
Filmed Entertainment 1,474 - -
Networks(e) 2,701 - -
Publishing(c) 1,188 - -
Corporate(d) (484) - (536)
Intersegment elimination (22) - -
------------ ----------- --------------
Total $ 9,897 $ (10) $ (536)
============ =========== ==============

Operating
Income/(Loss)
Gains/ Before
(Losses) Depreciation
From Asset And
Disposals Amortization
----------- ------------
AOL(a) $ 20 $ 1,772
Cable - 3,278
Filmed Entertainment - 1,474
Networks(e) (7) 2,694
Publishing(c) 8 1,196
Corporate(d) - (1,020)
Intersegment elimination - (22)
----------- ------------
Total $ 21 $ 9,372
=========== ============

(a) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization includes a $24 million noncash
impairment charge related to goodwill associated with America
Online Latin America, Inc. ("AOLA"), an approximate $5 million
gain related to the sale of a building and a $5 million gain from
the resolution of a previously contingent gain related to the 2004
sale of NSS. For the year ended December 31, 2004, Operating
Income before Depreciation and Amortization includes a $10 million
noncash impairment charge related to a building that was held for
sale, a gain of $13 million related to the sale of AOL Japan and a
$7 million gain related to the sale of NSS.

(b) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization includes a $5 million gain related
to the sale of a property in California.

(c) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization includes an $8 million gain related
to the collection of a loan made in conjunction with the Company's
2003 sale of Time Life Inc. ("Time Life"), which was previously
fully reserved due to concerns about recoverability. For the year
ended December 31, 2004, Operating Income before Depreciation and
Amortization includes an $8 million gain related to the sale of a
building.

(d) For the year ended December 31, 2005, Operating Loss before
Depreciation and Amortization includes $3 billion in legal
reserves related to securities litigation and $135 million in net
recoveries related to securities litigation and government
investigations. For the year ended December 31, 2004, Operating
Income before Depreciation and Amortization includes $510 million
in legal reserves related to the government investigations and $26
million in net expenses related to securities litigation and
government investigations.

(e) For the year ended December 31, 2004, Operating Income before
Depreciation and Amortization includes an approximate $7 million
loss related to the sale of the winter sports teams.


TIME WARNER INC.
RECONCILIATION OF OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION TO OPERATING INCOME
(millions, unaudited)

Three Months Ended December 31, 2005

Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
------------- ------------ ------------ ------------
AOL $ 342 $ (131)$ (37)$ 174
Cable 985 (411) (19) 555
Filmed
Entertainment(a) 407 (32) (68) 307
Networks 811 (65) (5) 741
Publishing 448 (34) (22) 392
Corporate(b) 24 (12) - 12
Intersegment
elimination 19 - - 19
------------- ------------ ------------ ------------
Total $ 3,036 $ (685)$ (151)$ 2,200
============= ============ ============ ============

Three Months Ended December 31, 2004

Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
------------- ------------ ------------ ------------
AOL(c) $ 333 $ (164)$ (49)$ 120
Cable 887 (370) (20) 497
Filmed
Entertainment 284 (29) (54) 201
Networks 663 (57) (4) 602
Publishing 405 (32) (32) 341
Corporate(b) (129) (11) - (140)
Intersegment
elimination (18) - - (18)
------------- ------------ ------------ ------------
Total $ 2,425 $ (663)$ (159)$ 1,603
============= ============ ============ ============

(a) For the three months ended December 31, 2005, Operating Income
before Depreciation and Amortization and Operating Income include
a $5 million gain related to the sale of a property in California.

(b) For the three months ended December 31, 2005, Operating Income
before Depreciation and Amortization and Operating Income include
$160 million in net recoveries related to securities litigation
and government investigations. For the three months ended December
31, 2004, Operating Income before Depreciation and Amortization
and Operating Income include $13 million in net expenses related
to securities litigation and government investigations.

(c) For the three months ended December 31, 2004, Operating Income
before Depreciation and Amortization and Operating Income include
a gain of $7 million related to the sale of NSS.


TIME WARNER INC.
RECONCILIATION OF OPERATING INCOME BEFORE DEPRECIATION
AND AMORTIZATION TO OPERATING INCOME
(millions, unaudited)

Year Ended December 31, 2005

Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
------------- ------------ ------------ ------------
AOL(a) $ 1,899 $ (557)$ (174)$ 1,168
Cable 3,652 (1,588) (76) 1,988
Filmed
Entertainment(b) 1,289 (121) (225) 943
Networks 2,999 (238) (23) 2,738
Publishing(c) 1,259 (132) (99) 1,028
Corporate(d) (3,295) (44) - (3,339)
Intersegment
elimination (7) - - (7)
------------- ------------ ------------ ------------
Total $ 7,796 $ (2,680)$ (597)$ 4,519
============= ============ ============ ============

Year Ended December 31, 2004

Operating
Income/(Loss)
Before
Depreciation
And Operating
Amortization Depreciation Amortization Income/(Loss)
------------- ------------ ------------ ------------
AOL(a) $ 1,772 $ (662)$ (176)$ 934
Cable 3,278 (1,438) (76) 1,764
Filmed
Entertainment 1,474 (104) (213) 1,157
Networks(e) 2,694 (212) (21) 2,461
Publishing(c) 1,196 (122) (140) 934
Corporate(d) (1,020) (43) - (1,063)
Intersegment
elimination (22) - - (22)
------------- ------------ ------------ ------------
Total $ 9,372 $ (2,581)$ (626)$ 6,165
============= ============ ============ ============

(a) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization and Operating Income include a $24
million noncash impairment charge related to goodwill associated
with AOLA, an approximate $5 million gain related to the sale of a
building and a $5 million gain from the resolution of a previously
contingent gain related to the 2004 sale of NSS. For the year
ended December 31, 2004, Operating Income before Depreciation and
Amortization and Operating Income include a $10 million noncash
impairment charge related to a building that was held for sale, a
gain of $13 million related to the sale of AOL Japan and a $7
million gain related to the sale of NSS.

(b) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization and Operating Income include a $5
million gain related to the sale of a property in California.

(c) For the year ended December 31, 2005, Operating Income before
Depreciation and Amortization and Operating Income include an $8
million gain related to the collection of a loan made in
conjunction with the Company's 2003 sale of Time Life, which was
previously fully reserved due to concerns about recoverability.
For the year ended December 31, 2004, Operating Income before
Depreciation and Amortization and Operating Income include an $8
million gain related to the sale of a building.

(d) For the year ended December 31, 2005, Operating Loss before
Depreciation and Amortization and Operating Income (Loss) include
$3 billion in legal reserves related to securities litigation and
$135 million in net recoveries related to securities litigation
and government investigations. For the year ended December 31,
2004, Operating Income before Depreciation and Amortization and
Operating Income include $510 million in legal reserves related to
the government investigations and $26 million in net expenses
related to securities litigation and government investigations.

(e) For the year ended December 31, 2004, Operating Income before
Depreciation and Amortization and Operating Income include an
approximate $7 million loss related to the sale of the winter
sports teams.


TIME WARNER INC.
RECONCILIATION OF CASH PROVIDED BY OPERATIONS TO FREE CASH FLOW
(millions, unaudited)

Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
2005 2004 2005 2004
-------- -------- -------- --------

Cash provided (used) by
operations $ (632) $ 1,230 $ 4,965 $ 6,618
Less discontinued operations:
Net loss - (6) - (121)
Other changes 2 13 10 (2)
-------- -------- -------- --------

Cash provided (used) by
continuing operations (630) 1,237 4,975 6,495
Add payments related to
securities litigation and
government investigations 2,429 213 2,754 236

Less capital expenditures and
product development costs (987) (1,003) (3,246) (3,024)

Less principal payments on
capital leases (24) (43) (118) (191)
-------- -------- -------- --------
Free Cash Flow(a) $ 788 $ 404 $ 4,365 $ 3,516
======== ======== ======== ========

(a) Free Cash Flow is cash provided by operations (as defined by U.S.
generally accepted accounting principles) plus payments related to
securities litigation and government investigations (net of any
insurance recoveries), less cash flow attributable to discontinued
operations, capital expenditures and product development costs,
principal payments on capital leases, and partnership
distributions, if any.


TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1: Description of Business, Recent Transactions and Basis ofPresentation

Description of Business

Time Warner Inc. ("Time Warner" or the "Company") is a leadingmedia and entertainment company, whose businesses include interactiveservices, cable systems, filmed entertainment, television networks andpublishing. Time Warner classifies its business interests into fivereportable segments: AOL: consisting principally of interactiveservices; Cable: consisting principally of interests in cable systemsthat provide video programming, high-speed data and Digital Phoneservices; Filmed Entertainment: consisting principally of featurefilm, television and home video production and distribution; Networks:consisting principally of cable television and broadcast networks; andPublishing: consisting principally of magazine and book publishing.

Recent Transactions

The WB Network JV

On January 24, 2006, Warner Bros. Entertainment Inc. ("WarnerBros.") and CBS Corp. ("CBS") announced an agreement in principle toform a new fully-distributed national broadcast network. At the sametime, Warner Bros. and CBS are preparing to cease the standaloneoperations of The WB Network and UPN, respectively, at the end of the2005/2006 television season (September 2006). Warner Bros. and CBSwill each own 50% of the new network and will have joint and equalcontrol. In addition, Warner Bros. has reached an agreement inprinciple with Tribune Corp. ("Tribune"), currently a subordinated22.25% limited partner in The WB Network, under which Tribune willsurrender its ownership interest in The WB Network and will receive asubordinated participation in the new network.

Upon closing of this transaction, the Company will account forthis investment under the equity method of accounting. The Companyanticipates that prior to the close of this transaction, the Companywill incur restructuring charges ranging from $15 million to $20million related to employee terminations. In addition, the Company mayincur costs in terminating certain programming arrangements that willnot be contributed to the new network or utilized in another manner.

AOL-Google Alliance

During December 2005, the Company announced that AOL was expandingits current strategic alliance with Google to enhance its globalonline advertising partnership and make more of AOL's contentavailable to Google users. Under the alliance, Google and AOL willcontinue to provide search technology to AOL's network of Internetproperties worldwide. Other key aspects of the alliance include:

-- Creating an AOL Marketplace through white labeling of Google's advertising technology, which enables AOL to sell search advertising directly to advertisers on AOL-owned properties;

-- Expanding display advertising available for AOL to sell throughout the Google network;

-- Making AOL content more accessible to Google Web crawlers;

-- Collaborating in video search and showcasing AOL's premium video service within Google Video;

-- Enabling Google Talk and AIM instant messaging users to communicate with each other, provided certain conditions are met; and

-- Providing AOL marketing credits for promotion of AOL's content on Google's Internet properties.

In addition, Google will invest $1 billion for a 5% equityinterest in a limited liability company that will own all of theoutstanding equity interests in AOL. The Company expects thesetransactions with Google to close during the first quarter of 2006.

Amounts Related to Securities Litigation

In July 2005, the Company reached an agreement in principle forthe settlement of the securities class action lawsuits included in thematters consolidated under the caption In re: AOL Time Warner Inc.Securities & "ERISA" Litigation described in the Company's AnnualReport on Form 10-K for the year ended December 31, 2004 (the "2004Form 10-K"). The settlement is reflected in a written agreementbetween the lead plaintiff and the Company. On September 30, 2005, thecourt issued an order granting preliminary approval of the settlementand certified the settlement class. The court has scheduled the finalapproval hearing for February 22, 2006. At this time, there can be noassurance that the settlement of the securities class actionlitigation will receive final court approval. In connection withreaching the agreement in principle on the securities class action,the Company established a reserve of $2.4 billion during the secondquarter of 2005. Ernst & Young LLP also has agreed to a settlement inthis litigation matter and will pay $100 million. Pursuant to thesettlement, in October 2005 Time Warner paid $2.4 billion into asettlement fund (the "MSBI Settlement Fund") for the members of theclass represented in the action. In addition, the $150 millionpreviously paid by Time Warner into a fund in connection with thesettlement of the investigation by the U.S. Department of Justice("DOJ") was transferred to the MSBI Settlement Fund, and Time Warneris using its best efforts to have the $300 million it previously paidin connection with the settlement of its Securities and ExchangeCommission ("SEC") investigation, or at least a substantial portionthereof, transferred to the MSBI Settlement Fund.

In addition to the $2.4 billion reserve established in connectionwith the agreement in principle regarding the settlement of the MSBIconsolidated securities class action, during the second quarter of2005 the Company established an additional reserve totaling $600million in connection with the other related securities litigationmatters, described in pages 39-42 of the 2004 Form 10-K, that arepending against the Company. This $600 million amount continues torepresent the Company's current best estimate of its potentialfinancial exposure in these matters, including the remainingindividual shareholder suits, the derivative actions and the actionsalleging violations of the Employee Retirement Income Security Act("ERISA").

The Company reached an agreement with the carriers on itsdirectors and officers insurance policies in connection with thesecurities and derivative action matters described above and in pages38-42 of the 2004 Form 10-K (other than the actions allegingviolations of ERISA described on page 39 of the 2004 Form 10-K). As aresult of this agreement, the Company has recorded a recovery ofapproximately $185 million, which is expected to be collected in thefirst quarter of 2006 and is reflected as a reduction to "Amountsrelated to securities litigation and government investigations" in theaccompanying consolidated statement of operations for the year endedDecember 31, 2005.

Update on Status of Government Investigations

As previously disclosed by the Company, the SEC and the DOJ hadbeen conducting investigations into the accounting and disclosurepractices of the Company. Those investigations focused on advertisingtransactions, principally involving the Company's America Onlinesegment, the methods used by the America Online segment to report itssubscriber numbers and the accounting related to the Company'sinterest in AOL Europe prior to January 2002. During 2004, the Companyestablished $510 million in legal reserves related to the governmentinvestigations, the components of which are discussed in more detailin the following paragraphs.

The Company and its subsidiary, AOL, entered into a settlementwith the DOJ in December 2004 that provided for a deferred prosecutionarrangement for a two-year period. As part of the settlement with theDOJ, in December 2004, the Company paid a penalty of $60 million andestablished a $150 million fund, which the Company could use to settlerelated securities litigation. The fund is reflected as restrictedcash on the Company's accompanying consolidated balance sheet atDecember 31, 2004. During October 2005, the $150 million wastransferred by the Company into the settlement fund for the members ofthe class covered by the consolidated securities class actiondescribed above under the heading "Amounts Related to SecuritiesLitigation."

In addition, on March 21, 2005, the Company announced that the SEChad approved the Company's proposed settlement, which resolved theSEC's investigation of the Company.

Under the terms of the settlement with the SEC, the Companyagreed, without admitting or denying the SEC's allegations, to beenjoined from future violations of certain provisions of thesecurities laws and to comply with the cease-and-desist order issuedby the SEC to AOL in May 2000. The settlement also required theCompany to:

-- Pay a $300 million penalty, which will be used for a Fair Fund, as authorized under the Sarbanes-Oxley Act;

-- Adjust its historical accounting for Advertising revenues in certain transactions with Bertelsmann, A.G. that were improperly or prematurely recognized, primarily in the second half of 2000, during 2001 and during 2002; as well as adjust its historical accounting for transactions involving three other AOL customers where there were Advertising revenues recognized in the second half of 2000 and during 2001;

-- Adjust its historical accounting for its investment in and consolidation of AOL Europe; and

-- Agree to the appointment of an independent examiner, who will either be or hire a certified public accountant. The independent examiner will review whether the Company's historical accounting for transactions with 17 counterparties identified by the SEC staff, principally involving online advertising revenues and including three cable programming affiliation agreements with related advertising elements, was in conformity with GAAP, and provide a report to the Company's audit and finance committee of its conclusions, originally within 180 days of being engaged. The transactions that would be reviewed were entered into between June 1, 2000 and December 31, 2001, including subsequent amendments thereto, and involved online advertising and related transactions for which revenue was principally recognized before January 1, 2002.

The Company paid the $300 million penalty in March 2005; however,it will not be able to deduct the penalty for income tax purposes, bereimbursed or indemnified for such payment through insurance or anyother source, or use such payment to setoff or reduce any award ofcompensatory damages to plaintiffs in related securities litigationpending against the Company. As described above, in connection withthe pending settlement of the consolidated securities class action,the Company is using its best efforts to have the $300 million, or asubstantial portion thereof, transferred to the settlement fund forthe members of the class represented in the action. The historicalaccounting adjustments were reflected in the restatement of theCompany's financial results for each of the years ended December 31,2000 through December 31, 2003, which were included in the Company's2004 Form 10-K.

The independent examiner has begun its review, which as a resultof an extension, is expected to be completed in the second quarter of2006. Depending on the independent examiner's conclusions, a furtherrestatement might be necessary. It is also possible that, so long asthere are unresolved issues associated with the Company's financialstatements, the effectiveness of any registration statement of theCompany or its affiliates may be delayed.

Common Stock Dividends

On May 20, 2005, the Company announced that it would begin payinga regular quarterly cash dividend of $0.05 per share on its commonstock beginning in the third quarter 2005. Under this dividendprogram, on September 15, 2005 and December 15, 2005, the Company paidcash dividends of $0.05 per share on its common stock, to shareholdersof record on August 31, 2005 and November 30, 2005, respectively. Thetotal amount of dividends paid during 2005 was $466 million.

Adelphia Acquisition Agreement

On April 20, 2005, a subsidiary of the Company, Time Warner NYCable LLC ("TW NY"), and Comcast Corporation ("Comcast") each enteredinto separate definitive agreements with Adelphia CommunicationsCorporation ("Adelphia") to, collectively, acquire substantially allthe assets of Adelphia for a total of $12.7 billion in cash (of whichTW NY will pay $9.2 billion and Comcast will pay the remaining $3.5billion) and 16% of the common stock of Time Warner Cable Inc. ("TWCInc.").

At the same time that Comcast and TW NY entered into the Adelphiaagreements, Comcast, TWC Inc. and/or their respective affiliatesentered into agreements providing for the redemption of Comcast'sinterests in TWC Inc. and Time Warner Entertainment Company, L.P.("TWE") (the "TWC Inc. Redemption Agreement" and the "TWE RedemptionAgreement," respectively, and, collectively, the "TWC Inc. and TWERedemption Agreements"). Specifically, Comcast's 17.9% interest in TWCInc. will be redeemed in exchange for stock of a subsidiary of TWCInc. holding cable systems serving approximately 587,000 subscribers(as of December 31, 2004), as well as approximately $1.9 billion incash. In addition, Comcast's 4.7% interest in TWE will be redeemed inexchange for interests in a subsidiary of TWE holding cable systemsserving approximately 168,000 subscribers (as of December 31, 2004),as well as approximately $133 million in cash. TWC Inc., Comcast andtheir respective subsidiaries will also swap certain cable systems toenhance their respective geographic clusters of subscribers ("CableSwaps").

After giving effect to the transactions, TWC Inc. will gainsystems passing approximately 7.5 million homes (as of December 31,2004), with approximately 3.5 million basic subscribers. TWC Inc. willthen manage a total of approximately 14.4 million basic subscribers.Time Warner will own 84% of TWC Inc.'s common stock (including 83% ofthe outstanding TWC Inc. Class A Common Stock, which will becomepublicly traded at the time of closing, and all outstanding shares ofTWC Inc. Class B Common Stock) and own a $2.9 billion indirecteconomic interest in TW NY, a subsidiary of TWC Inc.

These transactions are subject to customary regulatory review andapprovals, including Hart-Scott-Rodino antitrust approval, FederalCommunications Commission ("FCC") and local franchise approvals, aswell as, in the case of the Adelphia acquisition, the Adelphiabankruptcy process, which involves approvals by the bankruptcy courthaving jurisdiction over Adelphia's Chapter 11 case and Adelphia'screditors. Closing of the Adelphia acquisition is expected during thefirst half of 2006.

The purchase of Adelphia's assets is not dependent on the closingof the Cable Swaps or the transactions contemplated by the TWC Inc.and TWE Redemption Agreements. Furthermore, if Comcast fails to obtaincertain necessary governmental authorizations, TW NY has agreed toacquire the cable operations of Adelphia that would have been acquiredby Comcast, with the purchase price payable in cash or TWC Inc. stockat the Company's discretion.

Urban Cable Works of Philadelphia, L.P.

On November 22, 2005, TWC Inc. purchased the remaining 60%interest in Urban Cable Works of Philadelphia, L.P. ("Urban Cable"),an operator of cable systems in Philadelphia, Pennsylvania withapproximately 47,000 basic subscribers. The purchase price consistedof $54 million in cash and the assumption of $44 million of UrbanCable's third-party debt. Prior to TWC Inc.'s acquisition of theremaining interest, Urban Cable was an unconsolidated joint venture ofTWC Inc., which was 40% owned by TWC Inc. and 60% owned by aninvestment group led by Inner City Broadcasting ("Inner City"). Undera management agreement, TWC Inc. was responsible for the day-to-daymanagement of Urban Cable. During 2004, TWC Inc. made cash paymentsof $34 million to Inner City to settle certain disputes regarding thejoint venture. In conjunction with the proposed Adelphia acquisitiondescribed above, Urban Cable will be transferred to Comcast as part ofthe Cable Swaps. For additional details, please refer to thesubsection titled "Adelphia Acquisition Agreement" above. From thetime it was consolidated through December 31, 2005, Urban Cablecontributed Subscription revenues and Operating Income of $7 millionand $1 million, respectively.

Basis of Presentation

Stock-Based Compensation

In December 2004, the Financial Accounting Standards Board("FASB") issued FASB Statement of Financial Accounting Standards("Statement") No. 123 (Revised), "Share-Based Payment" ("FAS 123R").FAS 123R requires all companies to measure compensation costs for allshare-based payments (including employee stock options) at fair valueand recognize such costs in the statement of operations. As a result,the application of the provisions of FAS 123R will have a significantimpact on Operating Income before Depreciation and Amortization,Operating Income, Net Income and Earnings per Share. In theaccompanying financial statements, the Company accounts forshare-based compensation using the intrinsic value method set forth inAccounting Principles Board Opinion No. 25, "Accounting for StockIssued to Employees" ("APB 25"). The Company will adopt FAS 123Rbeginning January 1, 2006 and plans to restate previously reportedamounts as allowed by FAS 123R.

In accordance with APB 25 and related interpretations,compensation expense for stock options is recognized in income basedon the excess, if any, of the quoted market price of the stock at thegrant date of the award or other measurement date over the amount anemployee must pay to acquire the stock. The compensation costs relatedto stock options recognized by the Company pursuant to APB 25 wereminimal. If a company measures share-based compensation using APB 25,it must also disclose what the impact would have been if it hadmeasured share-based compensation using the fair value of the equityaward on the date it is granted as provided in FAS 123, thepredecessor of FAS 123R. If compensation costs for the Company's stockoption plans had been determined based on the fair value method setforth in FAS 123, the Company would have recorded $319 million and$544 million of additional compensation expense from continuingoperations on a pre-tax basis for the years ended December 31, 2005and 2004, respectively.

Reclassifications

Certain reclassifications have been made to the prior year'sfinancial information to conform to the December 31, 2005presentation.

Note 2: Intersegment Transactions

In the normal course of business, the Time Warner segments enterinto transactions with one another. The most common types ofintersegment transactions include:

-- The Filmed Entertainment segment generating Content revenues by licensing television and theatrical programming to the Networks segment;

-- The Networks segment generating Subscription revenues by selling cable network programming to the Cable segment;

-- The Cable segment recognizing Subscription revenues by offering the AOL service to its subscribers;

-- The AOL, Cable, Networks and Publishing segments generating Advertising revenues by cross-promoting the products and services of all Time Warner segments; and

-- The AOL segment generating Other revenues by providing the Cable segment's customers access to the AOL Transit Data Network for high-speed access to the Internet.

These intersegment transactions are recorded by each segment atestimated fair value as if the transactions were with third partiesand, therefore, impact segment performance. While intersegmenttransactions are treated like third-party transactions to determinesegment performance, the revenues (and corresponding expensesrecognized by the segment that is counterparty to the transaction) areeliminated in consolidation and, therefore, do not themselves impactconsolidated results. Additionally, transactions between divisionswithin the same reporting segment (e.g., a transaction between HBO andTurner Broadcasting System, Inc. within the Networks segment) areeliminated in arriving at segment performance and, therefore, do notthemselves impact segment results.

Revenues recognized by Time Warner's segments on intersegmenttransactions are as follows:
Three Months Ended Year Ended
December 31, December 31,
----------------- -----------------
2005 2004 2005 2004
------- ------- ------- -------
(millions)

Intersegment Revenues(a)
AOL $ 10 $ 14 $ 28 $ 59
Cable 8 17 40 54
Filmed Entertainment 210 264 749 757
Networks 155 159 595 602
Publishing 32 27 98 87
------- ------- ------- -------
Total intersegment revenues $ 415 $ 481 $ 1,510 $ 1,559
======= ======= ======= =======

(a) Intersegment revenues include intercompany Advertising revenues of
$55 million and $57 million for the three months ended December
31, 2005 and 2004, respectively, and $176 million and $162 million
for the year ended December 31, 2005 and 2004, respectively.