Time Warner, Inc. was established in 1990 by the merger of Time, Inc. and Warner Communications.

In
the year 2000, AOL and Time Warner made a significant announcement regarding their intention to
merge, marking it as the most substantial corporate merger in the history of the United States.
Nevertheless, the valuation of the merged company experienced a decline, reaching a total of $165
billion upon the finalization of the merger.

By the year 2003, AOL Time Warner had experienced limited accomplishments in the process of
integrating its products, since there was a lack of collaboration between the AOL and Time Warner
divisions. Additionally, internal tensions resulted in the loss of advertising partnerships. AOLTime
Warner incurred a substantial loss of $98.7 billion in 2002 due to the collapse in technology stocks and a
sluggish economic environment. In 2002, Gerald Levin, who had held the positions of chairman and CEO
of Time Warner, resigned from his role as CEO of AOL Time Warner. In early 2003, Steve Case, the
former chairman and CEO of AOL, tendered his resignation as the chairman of AOL Time Warner.
Richard Parsons was elevated from the role of Chief Operating Officer (COO) of the Time Warner division
to assume the position of Chief Executive Officer (CEO) of the organization.

The merger between AOL and Time Warner has been widely criticized by various analysts and investors,
who argue that AOL provided misleading information to Time Warner regarding the potential of online
advertising and exaggerated its revenue figures. In 2003, the Securities and Exchange Commission (SEC)
initiated an investigation into claims surrounding AOL's utilization of assertive and illicit practices in
revenue recognition in the period leading up to the merger.

In September 2003, the corporation made the decision to remove AOL from its official corporate name
and subsequently recommenced its activities under the name Time Warner, Inc. Despite seeing
operational improvements and a return to profitability in 2003, Time Warner executives continue to
encounter a multitude of hurdles in effectively managing the world's largest media firm.
Time Warner, Inc., was formed in 1990 by the merger of magazine publisher Time, Inc. and Warner
Communications, primarily a producer of film and television programming. To reduce debt, Time Warner
sold 25 percent of Time Warner Entertainment (which included HBO, Warner Bros., and part of Time
Warner Cable) to Media One Group. In 1996, Time Warner acquired Turner Broadcasting Systems,
expanding its cable programming networks significantly. By the end of 1999, Time Warner had revenues
in excess of $27 billion and net income of almost $2 billion.

In January 2000, AOL and Time Warner announced their intent to merge, and the merger was
completed a year later. The merger was the largest in U.S. corporate history, with AOL’s
preannouncement value at $163 billion, and Time Warner’s preannouncement value of $100 billion.
However, by the time the merger was completed, the value of the combined firm had dropped to $165
billion. Both companies hoped that the combination of Time Warner’s content and AOL’s Internet base
would provide increased opportunities for the merged company to grow. Many ideas were presented to
show how AOL and Time Warner would be able to combine their Internet and media operations to
enhance the value of the combined entity.

By 2003, AOL Time Warner had achieved few successes in merging the products. Cooperation between
the AOL and Time Warner divisions was nonexistent, and advertising deals were lost due to internal
conflicts. The decline in the value of technology stocks and a sluggish economy forced AOLTime Warner
to take a $98.7 billion loss in 2002, primarily due to the write-down of the value of AOL. Gerald Levin,
the chairman and CEO of Time Warner prior to the merger, stepped down as the CEO of AOL Time
Warner in 2002. Steve Case, former chairman and CEO of AOL, resigned as chairman of AOL Time
Warner in early 2003. Richard Parsons was promoted from COO of the Time Warner side to the position
of CEO of the firm. Parsons, who was also appointed chairman of the board when Case resigned,
promoted several senior Time Warner executives and accepted the resignations of some of the top AOL
management.

Several commentators and numerous Time Warner investors considered the AOL merger a mistake,
some even calling it the “worst deal in history.” Many believed that AOL misled Time Warner prior to the
merger about the outlook in online advertising and overstated its revenues. In 2003, the Securities and
Exchange Commission announced an investigation into allegations that AOL used aggressive and illegal
methods for recognizing revenue leading up to the merger. By early 2003, the prospect of splitting AOL
and Time Warner and undoing the largest merger in U.S. history was a real possibility.

However, Parsons declined to shed AOL and instead focused on reducing the company’s debt and
integrating the businesses. The company announced agreements to sell its music recording and
publishing operations, Warner Music Group, for $2.6 billion and its CD and DVD manufacturing and
distribution business, Warner Manufacturing, for $1.05 billion. It also reached agreements to sell Time
Life operations, a direct-marketing business with 2003 net operating losses of $82 million, and its Turner
winter sports teams (the NHL’s Atlanta Thrashers and NBA’s Atlanta Hawks), which posted operating
losses of $37 million. In September 2003, the company dropped AOL from its corporate name and
resumed operations as Time Warner, Inc.

While 2003 saw improvement in operations and a return to profitability (see Exhibits 1a and 1b in the
Appendix), Time Warner executives still face numerous challenges in managing the largest media
company in the world. America Online is facing declining revenues, Time Warner Cable is seeing
saturated markets and increased competition, and the publishing industry is soft due to low advertising
levels. Success in its filmed entertainment and cable programming networks has provided the only
encouragement.