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Time Warner, Readers Digest Looks For Double-Digit Profit Growth

December 10, 1992 GMT

NEW YORK (AP) _ Time Warner Inc. expects to post operating earnings increases over the next five years that will match and may exceed its 13 percent average for the past five years.

The entertainment and media conglomerate also indicated Wednesday it plans to take steps over the next few years to ″monetize″ about $3 billion in investments it has in companies like Turner Broadcasting System Inc.

Time Warner executives said that could mean selling the stakes, increasing them, swapping them for other assets or other undisclosed options.

They indicated the move was being made primarily because current accounting procedures on minority interests prohibit results from such investments being included with the company’s operating results.

As a result, they said analysts and investors tend to overlook the returns when valuing a company and its stock price suffers.

Geoffrey Holmes, a Time Warner senior vice president who discussed its earnings outlook and strategic plans for analysts at a PaineWebber Inc. media conference, declined to say how long it might take to reach decisions on what to do with the assets. He said the proceeds would be used to cut debt.

Reader’s Digest Association Inc., which also appeared on the third day of the five-day conference, said it is aiming for annual per-share earnings growth of 10 percent to 15 percent.

The global publisher and direct mail marketer posted its eighth consecutive annual profit record in its fiscal year ended June 30. It earned $1.95 a share.

Chairman and chief executive George Grune said the company was in its strongest financial and strategic position ever.

Its flagship operation is Reader’s Digest magazine, published in 17 languages in 41 editions worldwide and with a circulation of 28 million.

The company uses the magazine as an entree to customers who are offered other products such as condensed books, music and videotapes. It relies much less heavily on advertising than other publishers, and as a result has been hurt less by the recession and ad slump.

But president James Schadt said automakers General Motors Corp. and Ford Motor Co. have recently signed deals to advertise in Reader’s Digest editions around the world, and he said he hoped packaged goods and consumer electronics companies would do the same.

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Time Warner is already the world’s biggest media and entertainment company and Holmes said it hopes sales in foreign markets will help it grow, particularly in filmed entertainment.

He said he could see no reason why operating earnings growth over the next five years couldn’t match the 13 percent compound annual rate achieved in the past five years and added he would be ″disappointed if we did not do better.″

He said the company’s publishing business had bottomed out after reporting an average 4 percent decline in operating profits in the past five years.

Time Warner’s experience over the past year with a 150-channel cable TV system in a neighborhood in the Queens borough of New York has excited the company about the potential for investing in expanding channel capacity elsewhere in its cable system, the second largest in the nation.

Holmes said the number of basic subscribers in that system are up and more than usual order pay-per-view programs and pay cable channels.

The investments that Time Warner wants to monetize include its 21 percent stake in Turner Broadcasting, the Atlanta-based cable TV company; a 50 percent stake in various cable systems with 1.5 million subscribers; a 37.5 percent interest in the Tennesee-based media company Whittle Communications; and a 50 percent stake in the owner of the Six Flags theme parks.

Earlier this week, the company took the first step in that process by announcing a $1.5 billion issue of notes that can be converted into shares of Hasbro Inc. stock that Time Warner owns.

In trading on the New York Stock Exchange, Time Warner fell 37 1/2 cents a share to $28 while Reader’s Digest Association Class A shares rose 25 cents a share to $55.50.