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TW 'lmpairs' Itself With $25B Charge

Time Warner Inc. said last week 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 write-down 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 the TWC writedown is equal to 39% of the $38.9 billion in intangibles not subject to amortization, which are predominantly franchise rights it reported in the third quarter.

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 but said operating income before depreciation and amortization should grow about 1% in 2008, compared to previous guidance of 5% OIBDA growth.