TURNER BROADCASTING SYSTEM INC, 10-K405, 1995-03-27

TURNER BROADCASTING SYSTEM INC
10-K405, 1995-03-27
TELEVISION BROADCASTING STATIONS

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]

FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

FOR THE TRANSITION PERIOD FROM TO
-------------------- --------------------
COMMISSION FILE NO. 0-9334

TURNER BROADCASTING SYSTEM, INC.
(Exact name of registrant as specified in its charter)

<TABLE>
<S> <C>
GEORGIA
(State or other jurisdiction of 58-0950695
incorporation or organization) (IRS Employer Identification No.)
ONE CNN CENTER 30303
ATLANTA, GEORGIA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
</TABLE>

(404) 827-1700
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

Securities registered pursuant to section 12(b) of the Act:

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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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<S> <C>
Class A Common Stock, $0.0625 par value per
share American Stock Exchange
Class B Common Stock, $0.0625 par value per
share American Stock Exchange
</TABLE>

Securities registered pursuant to Section 12(g) of the Act:
NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes /X/ No / /

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/

The aggregate market value of voting stock held by non-affiliates of the
registrant as of January 31, 1995: $201,400,000 Class A Common Stock,
$780,900,000 Class B Common Stock, $138,400,000 Class C Convertible Preferred
Stock.

The number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1994: Class A Common Stock, par value
$0.0625 -- 68,330,388 shares and Class B Common Stock, par value
$0.0625 -- 137,424,549 shares.

DOCUMENTS INCORPORATED BY REFERENCE

(1) Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1994 (the "1994 Annual Report to Shareholders")
are incorporated by reference in Part I, Item 1 and Part II, Items 5-8 of this
Report, as more particularly described herein.

(2) Portions of the registrant's definitive Proxy Statement (the "1995
Proxy Statement") to be filed with the Commission on or about April 30, 1995
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
are incorporated by reference in Part III of this Report.
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PART I

ITEM 1. BUSINESS

BACKGROUND

Turner Broadcasting System, Inc. (the "Company") is a diversified
information and entertainment company which was incorporated in the State of
Georgia in 1965. Through its subsidiaries at December 31, 1994, the Company
owned and operated four domestic entertainment networks, four international
entertainment networks (together the "Entertainment Networks"), and three news
networks. The Company produces and distributes entertainment and news
programming worldwide, with operations in motion picture, animation and
television production, home video, television syndication, licensing and
merchandising, and publishing.

In December 1993, the Company acquired Castle Rock Entertainment ("Castle
Rock"), a motion picture and television production company, and in January 1994,
the Company completed its acquisition of New Line Cinema Corporation ("New
Line"), an independent producer and distributor of motion pictures.

Also in December 1993, the Company acquired the remaining 50% interest in
HB Holding Co. (the "Joint Venture"), which owns over 3,000 half-hours of
animated programming.

BUSINESS SEGMENTS

As a result of the Company's recent business combinations and expanded
emphasis on entertainment production and distribution, the Company's operations
have been classified into two primary industry segments: Entertainment and News.
The Entertainment Segment consists of Entertainment Networks and Entertainment
Production and Distribution; the revenue generated by this segment (after
elimination of intrasegment revenues) represented 71% of the Company's
consolidated revenue for the year ended December 31, 1994. The News Segment is
comprised of domestic and international news networks and generated 24% of the
Company's consolidated revenue for the year ended December 31, 1994.

For additional financial information about the Company's industry segments
for each of the three years ended December 31, 1994, see Note 13 of Notes to
Consolidated Financial Statements on page 50 in the Company's 1994 Annual Report
to Shareholders, which is incorporated herein by reference.

ENTERTAINMENT

The Company's Entertainment Segment consists of Entertainment Networks and
Entertainment Production and Distribution.

ENTERTAINMENT NETWORKS

At December 31, 1994, Entertainment Networks included four domestic
networks (WTBS (commonly known as "TBS SuperStation"), Turner Network Television
("TNT"), the Cartoon Network and Turner Classic Movies ("TCM")) and four
international networks (TNT Latin America, Cartoon Network Latin America, TNT &
Cartoon Network Europe and TNT & Cartoon Network Asia). For selected information
concerning household coverage, viewership and ratings of the Entertainment
Networks, refer to page 28 in the Company's 1994 Annual Report to Shareholders
incorporated herein by reference.

Domestic

TBS SuperStation is a 24-hour per day independent UHF television station
located in Atlanta, Georgia, which is transmitted over-the-air to the Atlanta
market and is also retransmitted by common carrier via satellite to cable
systems located in all 50 states, Puerto Rico and the Virgin Islands. TBS
SuperStation relies principally on advertising revenue and receives no
compensation for its signal from cable systems (other than indirectly from
copyright fees paid and allocated through the Federal Copyright Office, formerly
the Federal
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Copyright Royalty Tribunal ("CRT"), for Company-owned programs) or from Southern
Satellite Systems, Inc. ("Southern"), the common carrier which delivers its
signal to the cable systems.

Generally, the Company does not have contracts with the local cable systems
controlling coverage of the TBS SuperStation signal; nor does the Company have a
contract with Southern, which is a common carrier controlled by
Tele-Communications, Inc. (see "I. Election of Directors," " -- Additional
Information" and " -- Executive Compensation -- Certain Relationships and
Related Transactions" in the Company's 1995 Proxy Statement), requiring
retransmission of the TBS SuperStation signal. Local cable systems contract with
Southern for use of the TBS SuperStation signal. This retransmission of the TBS
SuperStation signal could be discontinued by the carrier subject to Southern's
contracts with the local cable systems. In view of the substantial fees received
by Southern from the local cable systems for the TBS SuperStation signal, the
Company considers voluntary discontinuance of such retransmission by Southern
unlikely.

TNT is a 24-hour per day advertiser-supported cable television
entertainment program service that was launched in October 1988. The Cartoon
Network is a 24-hour per day advertiser-supported cable television animated
program service that was launched in October 1992. Both networks are transmitted
via satellite for distribution by cable television operators and other
distributors. They derive revenue primarily from two sources: sale of
advertising time on the networks and receipt of per-subscriber license fees paid
by cable operators and other distributors.

TCM is a 24-hour per day commercial-free cable television entertainment
program service that was launched in April 1994. The network is transmitted via
satellite for distribution by cable television operators and other distributors
(primarily direct broadcast satellite), and derives its revenues primarily from
receipt of per-subscriber license fees paid by those cable operators and other
distributors.

The sale of advertising time is affected by viewer demographics, viewer
ratings and market conditions. In order to evaluate the level of its viewing
audience, the Company makes use of the metered method of audience measurement.
This method, which provides a national sample through the use of meters attached
to television sets, produces a continuous measurement of viewing activity within
those households. The Company utilizes the services of A.C. Nielsen ("Nielsen"),
the metered estimates of which are widely accepted by advertisers as a basis for
determining advertising placement strategy and rates.

The rating measurements supplied by Nielsen to the Company are translated
into advertising revenues on the basis of the average cost per thousand homes
charged for advertising ("CPM"), which is negotiated by the advertiser and the
Company. The CPM will vary depending upon the type and schedule of the program
that will carry the advertisement, as some programs and time slots are viewed by
advertisers as delivering a more valuable audience segment than others.
Advertising revenue is a function of the audience sold and delivered, the CPM
charged to advertisers and the number of advertising spots sold.

International

TNT Latin America, which was launched in January 1991, is a 24-hour per day
trilingual entertainment program service distributed principally to subscribing
cable systems in Latin America and the Caribbean. At December 31, 1994, TNT
Latin America was distributed to subscribers in 36 countries and territories via
satellite. Revenues from this service are derived almost entirely from
subscription fees based on contracts with cable operators that specify minimum
subscriber levels.

Cartoon Network Latin America, which was launched in April 1993, is a
24-hour per day trilingual animated program service and is distributed
principally to subscribing cable systems in Latin America and the Caribbean. At
December 31, 1994, Cartoon Network Latin America was distributed to subscribers
in 29 countries and territories via satellite, deriving most of its revenue from
subscription fees based on contracts with cable operators.

TNT & Cartoon Network Europe, which was launched in September 1993, is a
24-hour per day program service which originates in the United Kingdom and is
distributed throughout Europe. At December 31, 1994, TNT & Cartoon Network
Europe was distributed in 34 countries and territories via satellite. This dual
programming service features 14 hours of animated programming during the day and
10 hours of film product

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at night. Approximately 40% of its schedule is dubbed audio or subtitled in six
languages -- English, French, Spanish, Swedish, Norwegian and Finnish. This
service derives most of its revenue from advertising sales and subscription
fees.

TNT & Cartoon Network Asia, which was launched in October 1994, is a
24-hour per day program service. The network originates in Hong Kong and is
distributed throughout the Asia Pacific region. At December 31, 1994, TNT &
Cartoon Network Asia was distributed in 8 countries and territories via
satellite. This dual programming service features 14 hours of animated
programming during the day and 10 hours of film product at night. A portion of
its schedule is dubbed audio or subtitled in English, Mandarin and Thai, with
more languages to be added in later years. The service will derive most of its
revenues from advertising sales and subscription fees.

Programming

The Entertainment Networks telecast 24 hours per day, 7 days per week. The
Company fulfills its programming needs through use of its copyright-owned
program libraries, syndicated programming, original productions and program
rights to sports events.

Copyright ownership consists chiefly of the world's largest film and
animation libraries: 3,400 films, 8,600 cartoon episodes and over 2,200 hours of
made-for-television programming. The Company also has the capability to produce
four of the most popular and universal types of programming: news, sports,
movies and cartoons.

The Company has acquired programming rights from the National Basketball
Association (the "NBA") to televise a certain number of regular season and
playoff games in each of the 1994-1995 through 1997-1998 seasons in return for
rights fees aggregating $352 million plus a share of the advertising revenues
generated under the agreement in excess of specified amounts. The Company also
entered into an agreement with the National Football League to televise a
certain number of pre-season and regular season Thursday and Sunday night games
in each of the 1994 through 1997 seasons in return for rights fees aggregating
$496 million.

The suppliers of substantially all programming telecast by TBS
SuperStation, other than programming owned by the Company, own or have rights to
the copyrights to such programming. The use and telecast of such programming by
TBS SuperStation is subject to the Copyright Act of 1976, as amended (the
"Copyright Act") and licensing agreements which, in most cases, grant to TBS
SuperStation nationwide non-exclusive rights to such programming. A small number
of the licensing agreements contain provisions which restrict the broadcast of
the programming by TBS SuperStation to the Atlanta market and the Company
typically pays a license fee significantly in excess of the market rate for
programming aimed at the Atlanta market alone. In addition, the suppliers of
such programs collect copyright royalties from the Federal Copyright Office
funded by all cable operators that carry the TBS SuperStation signal. Although
it is possible that program suppliers could initiate legal action against the
Company alleging breach of licensing agreements which are limited to the Atlanta
market, no such actions have been instituted to date and the Company believes
the probability of litigation against the Company in this regard is remote.
Furthermore, as a basis for the position that the nationwide transmission of TBS
SuperStation programming by Southern does not infringe upon the rights of
copyright owners or their licensees, the Company has relied upon the Copyright
Act which exempts certain secondary transmissions by carriers from copyright
liability. See "Business -- Regulation -- Copyright License System."

Competition

TBS SuperStation, TNT, the Cartoon Network and TCM compete with other
television programming services for distribution to viewers, and compete for
viewers with all other forms of programming provided to television viewers, such
as broadcast networks and local over-the-air television stations, home video
viewership, movie theaters and all other forms of audio/visual entertainment,
and news and information services. In the Atlanta market, TBS SuperStation vies
for viewers with affiliates of the four major networks, two other independent
stations and two affiliates of the Public Broadcasting System, in addition to
other programming available to local television viewers. The continued carriage
of the TBS SuperStation signal, or

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the addition of that signal to cable system operators, could be adversely
affected relative to other cable-delivered programming by the requirement that
cable operators pay copyright royalty fees for each distant non-network signal
carried by their systems. See "Business -- Regulation -- Copyright License
System."

Internationally, TNT Latin America, Cartoon Network Latin America, TNT &
Cartoon Network Europe and TNT & Cartoon Network Asia compete with all other
television programming services for distribution to viewers, and compete for
viewers with other forms of programming provided to television viewers, such as
broadcast networks and local over-the-air television stations, home video
viewership, movie theaters and all other forms of audio/visual entertainment,
and news and information services.

ENTERTAINMENT PRODUCTION AND DISTRIBUTION

The Entertainment Production and Distribution companies are involved in the
creation of programming or the distribution of original and library product to
the Entertainment Networks and third parties.

The Production companies include three that are involved principally in
motion picture and television production -- New Line, Castle Rock and Turner
Pictures Worldwide, Inc. ("Turner Pictures Worldwide"). The Company anticipates
that these three entities will release theatrically an aggregate of up to 40
films beginning in 1995. In 1994, these entities released an aggregate of 26
films. After theatrical release, the films will be distributed by the Company
primarily in the pay-per-view, home video, television and other syndication and
basic and premium cable network markets. The Company's fourth production entity,
Hanna-Barbera, Inc. ("Hanna-Barbera"), is engaged primarily in the production of
new animation product for the Company's Entertainment Networks and for
theatrical release.

The Company owns two major copyright libraries. The Turner Entertainment
Co. library (the "TEC Library") contains approximately 3,400 MGM, ("MGM"), RKO
Pictures, Inc. ("RKO") and pre-1950 Warner Bros. films, 3,000 short subjects and
1,850 cartoon episodes, and a number of television shows. The Hanna-Barbera
library (the "HB Library") consists of over 3,000 half-hours of animation
programming. Programming from both libraries has been used to launch
Entertainment Networks, such as TNT, the Cartoon Network and TCM, and as
cost-effective sources of on-going programming needs.

The Company-owned programming is marketed and distributed in the
theatrical, pay-per-view, home video, television and other syndication and basic
and premium cable network markets principally through its own organization,
except for certain pre-existing agreements related to the TEC Library and Castle
Rock and New Line product.

Pursuant to a 1986 agreement with its predecessor, Metro-Goldwyn-Mayer,
Inc. ("MGM/UA") became the designated distributor in the home video market of
the MGM and pre-1950 Warner Bros. films in the TEC Library, both domestically
and internationally. The distribution agreement (the "Home Video Agreement")
provides for a fifteen-year term commencing June 6, 1986, with distribution fees
payable based primarily on the suggested retail price of the films sold. Under
the agreement, TEC is responsible for all recording and releasing costs and has
significant consultation rights with respect to marketing, distribution and
exploitation of the films. In November 1990, MGM/UA entered into an agreement
with Warner Home Video, Inc. with respect to certain of MGM/UA's obligations
under the Home Video Agreement.

Also, pursuant to a 1986 agreement with a term of 10 years with its
predecessor, MGM/UA became the designated distributor in the theatrical and
non-theatrical exhibition markets of the TEC Library; however, the Company has
distribution rights to certain RKO product in certain international markets. In
addition, the Company has licensed original TNT productions for theatrical
distribution through several distributors in various countries outside the
United States.

After the termination or revision of pre-existing distribution agreements
with Sony Pictures Entertainment, Inc. and certain of its affiliates, Castle
Rock theatrical product will become available for international theatrical and
home video distribution by the Company in certain territories in 1995 and in
certain other territories in 1998, and will become available for domestic home
video distribution in 1997 and domestic theatrical distribution in 1998.
Additionally, after expiration of pre-existing distribution agreements with

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Columbia Tristar Home Video, New Line product will become available for domestic
home video distribution by the Company in 1995.

The Company's ancillary distribution capabilities include licensing and
merchandising, publishing, educational applications, video games and interactive
activities.

The licensing of the Company's programming is accomplished through sales
offices located in Atlanta, Chicago, Los Angeles and New York domestically, and
internationally in Argentina, Australia, Brazil, France, Hong Kong, Japan,
Mexico, the Netherlands, Puerto Rico and the United Kingdom.

Competition

Programming for television and the production of major motion pictures are
highly competitive businesses in which the main competitive factors are quality
and variety of product and marketing. Production companies compete with numerous
other motion picture and television production companies, and with television
networks and pay cable systems, for the acquisition of literary properties, the
services of performing artists, directors, producers, and other creative and
technical personnel as well as for paying audiences.

NEWS

At December 31, 1994, the Company's News Segment consisted of two domestic
networks (Cable News Network ("CNN") and Headline News) and one international
network (Cable News Network International ("CNN International")) (all such
networks, the "News Networks"). For selected information concerning household
coverage, viewership and ratings of the News Networks, refer to page 28 in the
Company's 1994 Annual Report to Shareholders incorporated herein by reference.

DOMESTIC

CNN is a 24-hour per day cable television news service which was launched
in June 1980. CNN uses a format consisting of up-to-the minute national and
international news, sports news, financial news, science news, medical news,
weather, interviews, analysis and commentary. CNN obtains reports from 29 news
bureaus (as of December 31, 1994), of which nine are in the United States
(Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, New York, San Francisco
and Washington, D.C.) and 20 are located outside the United States (Amman,
Bangkok, Beijing, Berlin, Brussels, Cairo, Jerusalem, Johannesburg, London,
Manila, Mexico City, Moscow, Nairobi, New Delhi, Paris, Rio de Janeiro, Rome,
Santiago, Seoul and Tokyo). In addition to these permanent bureaus, CNN
maintains satellite newsgathering trucks in the United States, portable
satellite uplinks (flyaways) in the United States and abroad and a network of
approximately 400 domestic and approximately 200 international broadcast
television affiliates (at December 31, 1994) which permit CNN to report live
from virtually anywhere in the world. The affiliate arrangements, from which CNN
derives substantial news coverage, are generally represented by contracts having
terms of one or more years. In addition, news is obtained through wire news
services, television news services and from freelance reporters and camera
crews. CNN is also a member, together with other news reporting companies, of
various news pools including the White House pool which, under certain
conditions, provides coverage of Presidential activities and White House events.

Headline News is a 24-hour per day cable television news service launched
in December 1981 which uses a concise, fast-paced format to provide constantly
updated half-hour newscasts. Although Headline News has its own studio and
transmission facilities, it utilizes CNN's newsgathering operations for the
accumulation of its own news stories.

Revenues for CNN and Headline News are derived from the sale of advertising
time and subscription sales of the services to cable system operators,
broadcasters, hotels and other clients as well as from distribution of the
service in the over-the-air and commercial and residential satellite markets.
See "Entertainment -- Entertainment Networks -- Domestic" for a discussion of
the effects of the items affecting the sale of advertising time.

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The programming of CNN and Headline News is transmitted via satellite to
local cable systems and others which have contracted directly with CNN to obtain
these news program services. The fee structure is based upon (i) the level of
carriage on a cable system on which the program is retransmitted and (ii) the
penetration of the Company's other programming services on the cable system,
subject to a discount based upon the number of subscribers.

INTERNATIONAL

CNN International is a 24-hour per day television news service consisting
of programming produced by CNN and Headline News, as well as original
programming, which is distributed to cable systems, broadcasters, hotels, direct
to home satellite viewers and businesses around the world on a network of 12
satellites outside the United States as of December 31, 1994. At December 31,
1994, CNN International was available in over 200 countries and territories on
five continents. Starting in January 1995, the CNN International satellite feed
became available on a limited basis in the United States. CNN International is
licensed and marketed by wholly-owned subsidiaries of the Company throughout the
world.

CNN International derives its revenues primarily from fees charged to cable
operators based on the number of subscribers and the level of carriage, fees
paid by other users (principally hotels and embassies) of the CNN International
signal, the sale of advertising time, and fees charged to international
over-the-air television stations for the use of the CNN International signal.

Competition

CNN and Headline News compete nationally and CNN International competes
internationally with other cable and television program services for
distribution to viewers, and compete for viewers with other forms of programming
provided to television viewers, such as broadcast networks and local
over-the-air television stations, with home video viewership, newspapers, news
magazines, movie theaters and all other forms of audio/visual entertainment,
news and information services. For other factors relating to competition, see
"Business Segments -- Entertainment -- Competition."

OTHER BUSINESSES

In addition to its Entertainment and News Segments, the Company owns or has
an interest in a number of other businesses, among them ownership of
professional sports teams.

THE ATLANTA BRAVES

In January 1976, the Company acquired the Atlanta Braves (the "Braves"), a
major league baseball club, through a wholly-owned subsidiary, Atlanta National
League Baseball Club, Inc. ("ANLBC"). In addition to the Braves, ANLBC operates
minor league farm clubs in Richmond, Virginia; Greenville, South Carolina; and
Macon, Georgia. ANLBC also operates rookie league clubs in West Palm Beach,
Florida and Danville, Virginia, and utilizes facilities under player development
contracts in Durham, North Carolina and Idaho Falls, Idaho. The Braves lease
office, locker room and storage space and play all home games in the
Atlanta-Fulton County Stadium in Atlanta, Georgia. ANLBC is a member of the
National League of Professional Baseball Clubs (the "National League"). ANLBC is
subject to payment of ongoing assessments and dues to the National League and to
compliance with the constitution and bylaws of the National League, as the same
may be modified from time to time by the membership, as well as with rules
promulgated by the Commissioner of Baseball. These rules include standards of
conduct for players and front office personnel; methods of operation; procedures
for drafting new players and for purchasing, selling and trading player
contracts; rules for implementing disciplinary action relative to players,
coaches and front office personnel; and certain financial requirements.

The baseball players under contract with clubs belonging to the National
League or to the American League of Professional Baseball Clubs (collectively,
the "Major Leagues") are represented for collective bargaining purposes by the
Major League Baseball Players' Association (the "Baseball Players' Associa-

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tion"). On March 19, 1990, the Major Leagues and the Baseball Players'
Association agreed to a collective bargaining agreement to be in effect until
December 31, 1993. Under the terms of that agreement, once a player was drafted
and executed a contract with a club, the club retained exclusive rights to that
player until he had completed six years of Major League service. At the
conclusion of this period, if the club and the player could not reach agreement
as to the terms of his contract, the player became a free agent and could
negotiate and enter into a contract with another club. The club losing a free
agent to another club was entitled to compensation for such loss only in the
form of additional amateur draft rights. The agreement also allowed for all
players with three years of Major League service and 17% of players with between
two and three years of Major League service to enter into salary arbitration.
The opportunity for "free agent" status and the players' rights to salary
arbitration have resulted in increased payroll cost for the major league clubs,
including the Braves.

The collective bargaining agreement specified that either the Major Leagues
or the Baseball Players' Association could reopen for negotiation certain
provisions of the agreement, specifically minimum salary levels, salary
arbitration and free agency issues, by providing written notice at least 30 days
prior to January 10, 1993. In December 1992, the Major Leagues reopened the
collective bargaining agreement. The entire 1993 season and the 1994 season
games prior to August 13, 1994 were played without an agreement.

Subsequent to the completion of the last game played, on August 12, 1994,
members of the Baseball Players' Association, which includes Braves players,
began a strike (the "Baseball Strike") over certain unresolved collective
bargaining agreement issues. On September 14, 1994, as a result of the Baseball
Strike, the Office of the Commissioner of Baseball announced that the 1994 Major
League season had ended. The effect of the Baseball Strike on the Company's
operating profit and cash flows for 1994 (the difference of which relates to
1994 ticket sales which will be applied to the 1995 season) was approximately
$14 million and $7 million, respectively. The Baseball Strike did not have a
material adverse impact on the Company's consolidated financial position in
1994. At this time the Baseball Strike is still unresolved, and the estimated
timing of resolution is undeterminable. However, the Baseball Strike is not
expected to have a material adverse impact on the consolidated financial
position or operations of the Company in 1995.

ANLBC receives a pro-rata distribution of revenues generated through
contracts negotiated with television networks, certain other broadcast revenues
and a portion of gate receipts from games away from home. During 1993, the
Office of the Commissioner of Baseball entered into a new agreement with
Entertainment and Sports Programming Network ("ESPN") covering the 1994 through
1999 seasons and entered into an agreement to form a joint venture with American
Broadcasting Company ("ABC") and National Broadcasting Company ("NBC") to
telecast certain major league games over six seasons beginning in 1994. If
certain minimum revenues are not generated from such telecasts, the participants
in the joint venture have the right to cancel the agreement for the remaining
length of the contract, without penalty. The impact of the Baseball Strike on
the joint venture or the agreement is not known at this time.

In January 1985, an agreement was reached between ANLBC and the Office of
the Commissioner of Baseball relative to the nationwide television exposure
afforded the telecasts of the Braves games on TBS SuperStation. The agreement,
extended through the 1993 season, required the Company to make rights fee
payments into the Major League Central Fund for equal distribution to all major
league baseball clubs including the Braves. In exchange for these fees, the
Commissioner of Baseball, among other things, would not seek to prohibit the
telecast of a specified number of Braves games on TBS SuperStation and the
accompanying nationwide satellite distribution of the TBS SuperStation signal by
common carrier. In 1994, no formal agreement existed; however, 88 games were
telecast in that season. The Company is currently negotiating with the Office of
the Commissioner of Baseball for a new long-term agreement that would resolve
the amount of rights fees for 1994, as well as address future seasons. An
estimate of the 1994 rights fees has been accrued in the Consolidated Financial
Statements in the Company's 1994 Annual Report to Shareholders incorporated
herein by reference. TBS SuperStation expects to televise approximately 125
Braves games during 1995. Also, SportSouth Network, Ltd., an unconsolidated
entity in which the Company holds a 44% interest, intends to telecast 30 games
in 1995 pursuant to an agreement with ANLBC.

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THE ATLANTA HAWKS

The Company, through Hawks Basketball, Inc., a wholly-owned subsidiary of
the Company, has a 96% limited partnership interest in the Atlanta Hawks, L.P.
(the "Hawks"), a member of the NBA. The Hawks play their home games in the
16,300-seat Omni Coliseum in Atlanta, Georgia, which is operated by a wholly-
owned subsidiary of the Company.

Professional basketball is organized in a manner similar to professional
baseball, except that there is presently only one league and basketball clubs do
not share in gate receipts from games away from home. The NBA, through its
constitution, has established rules governing club operations, including
drafting of players and trading player contracts.

A portion of the Hawks' revenues are derived from a pro-rata share of the
network broadcast rights fees received by the NBA, pursuant to the four-year
broadcast rights fee agreement covering the 1994-1995 through 1997-1998 seasons
awarded to NBC in 1993.

The NBA has a separate agreement with the Company to televise a package of
games. On November 29, 1989, the Company and the NBA entered into an agreement
for TNT to televise a certain number of regular season and playoff games in each
of the 1990-1991 through 1993-1994 seasons, in return for rights fees
aggregating $275 million. Pursuant to an agreement between the Company and the
Hawks dated June 1, 1978, as supplemented, TBS SuperStation televised 30 regular
season Hawks' games during the 1991-1992, 1992-1993 and 1993-1994 seasons. On
September 22, 1993, the Company and the NBA entered into an agreement whereby
both TNT and TBS SuperStation will telecast a certain number of regular season
and playoff games in each of the 1994-1995 through 1997-1998 seasons in return
for rights fees aggregating $352 million plus a share of the advertising
revenues generated in excess of specified amounts. As a result of entering into
this contract, TBS SuperStation discontinued its telecast of Hawks' games after
completion of the 1993-1994 season (except to the extent that individual Hawks'
games may be among the games telecast by TNT or TBS SuperStation). On November
4, 1994, the Hawks entered into an agreement for local telecast by non-
affiliated stations of 30 games during the 1994-1995 season and 30 games during
the 1995-1996 season.

NBA players are represented for collective bargaining purposes by the
National Basketball Players' Association (the "NBPA"). During June 1988, the NBA
and the NBPA agreed in principle to a new six-year collective bargaining
agreement, that, among other things, reduced the NBA draft to three rounds for
the 1988-1989 season (two rounds in subsequent years), continued the salary cap
which ties a team's payroll to the league's gross revenues, as defined, and
altered free agency guidelines regarding the right of first refusal. A player
may, under certain circumstances, become a total free agent upon termination of
his contract. For the 1994-1995 season, the NBA and NBPA are operating under a
one-year extension of the agreement.

SPORTSOUTH NETWORK

In May 1990, Turner Sports Programming, Inc. ("TSPI"), a wholly-owned
subsidiary of the Company, entered into an agreement with LMC Southeast Sports,
Inc. ("LMC") (formerly TCI Southeast Sports, Inc.) and Scripps Howard
Production, Inc. ("Scripps Howard") to form SportSouth Network, Ltd.
("SportSouth"). SportSouth was formed to launch SportSouth Network, a regional
sports network serving the Southeast. In August 1990, SportSouth and Wometco
Cable Corporation ("Wometco") entered into a separate agreement whereby Wometco
agreed to carry SportSouth Network on certain of its cable systems in exchange
for an interest in the profits of SportSouth ("Wometco's Interest"), subject to
the occurrence of certain events. In December 1994, SportSouth repurchased
Wometco's Interest and distributed such interest to TSPI and LMC. The Company's
ratable portion of the non-cash distribution was $8 million. As of December 31,
1994, TSPI owned a 44% interest in SportSouth. SportSouth Network programming
includes Braves baseball, Hawks basketball and various programs from Prime
Networks, a national service offering sports programming to affiliated sports
networks, cable operators and home satellite dish owners. SportSouth's revenues
are principally derived from the sale of advertising time and the sale of its
service to cable operators. At December 31, 1994, SportSouth Network served
approximately 4.3 million U.S. television households.

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<PAGE> 10

n-tv

The Company acquired a 27.5% interest in n-tv in March 1993. n-tv is a
24-hour per day German language news network currently reaching 17 million homes
in Germany and parts of Austria and Switzerland, primarily via cable systems.
Like TBS SuperStation in the United States, n-tv relies principally on
advertising revenues and receives no compensation for its signal from those
cable systems. The studio and offices of n-tv are located in Berlin. At December
31, 1994, the Company's ownership interest in n-tv was 30.3%. For additional
information concerning the acquisition of the ownership interest in n-tv, see
Note 2 of Notes to Consolidated Financial Statements on page 37 in the Company's
1994 Annual Report to Shareholders incorporated herein by reference.

OTHER

The Company's corporate and news operations are headquartered in CNN
Center, a multi-use office, retail and hotel complex in Atlanta, Georgia. The
CNN Airport Network, formerly called the Airport Channel, is a CNN produced
service that provides newscasts to travelers at airports across the United
States. Through World Championship Wrestling ("WCW"), the Company produces
wrestling programming for TBS SuperStation, the domestic syndication markets,
and pay-per-view television. It also stages live wrestling events.

REGULATION

BROADCAST REGULATION

Television broadcasting is subject to the jurisdiction of the Federal
Communications Commission (the "FCC" or the "Commission") under the
Communications Act of 1934, as amended (the "Communications Act"). Among other
things, FCC regulations govern the issuance, term, renewal and transfer of
licenses which must be obtained by persons to operate any television station.
The current broadcast license of TBS SuperStation was renewed on April 15, 1992
and will expire on April 1, 1997. In addition, FCC regulations govern certain
programming practices.

On June 12, 1992, the FCC released a Notice of Proposed Rulemaking under
which it proposes to re-examine current regulations and ownership restrictions
on television broadcasters. On January 17, 1995, the Commission released Further
Notices of Proposed Rulemaking. Among other things, the FCC is proposing
liberalizing the number of television stations a single entity may own or
altering the rule that currently prohibits an entity from owning more than one
station in a local market. Any regulatory change, if adopted, could affect the
Atlanta and national markets in which the Company operates. The Company at this
time cannot predict the outcome of this proceeding or the overall effect it may
have.

CABLE REGULATION

Cable television systems are regulated by municipalities or other local
government authorities. Municipalities generally have the jurisdiction to grant
and to review the transfer of franchises, to review rates charged to
subscribers, and to require public, educational, governmental or leased-access
channels, except to the extent that such jurisdiction is preempted by federal
law. Any such rate regulation or other franchise conditions could place downward
pressure on subscriber fees earned by the Company, and such regulatory carriage
requirements could adversely affect the number of channels available to carry
the Company's networks.

On October 5, 1992, the Cable Television Consumer Protection and
Competition Act of 1992 (the "1992 Act") became law. The principal provisions of
the 1992 Act that may affect the Company's operations are discussed below. The
Company cannot predict the full effect that the 1992 Act will have on its
operations.

Rate Regulation

Section 623 of the Communications Act, as amended by the 1992 Act,
establishes a two-tier rate structure applicable to systems not found to be
subject to "effective competition" as defined by the statute.

9
<PAGE> 11

Rates for a required "basic service tier" are subject to regulation by
practically every community. Rates for cable programming services other than
those carried on the basic tier are subject to regulation if, upon complaint,
the FCC finds that such rates are "unreasonable." Programming offered by a cable
operator on a per-channel or per-program basis, however, is exempt from rate
regulation.

On April 1, 1993, the FCC adopted implementation regulations for Section
623. The text of its Report and Order was released on May 3, 1993. The FCC
adopted a benchmark approach to rate regulation. Rates above the benchmark would
be presumed to be unreasonable. Once established, cable operators could adjust
their rates based on appropriate factors and could pass through certain costs to
customers, including increased programming costs.

On February 22, 1994, the Commission adopted further regulations. Among
other things, the additional regulations will govern the offering of bona fide
"a la carte" channels that are exempted from rate regulation. The Commission
also adopted a methodology for determining rates when channels are added to or
deleted from regulated tiers. These regulations may adversely affect the
Company's ability to sell its existing or new networks to cable customers and/or
may adversely affect the prices the Company may charge for its services,
although at this time the Company cannot predict their full effect on its
operations.

On April 5, 1993, the FCC also froze rates for cable services subject to
regulation under the 1992 Act for 120 days. On June 11, 1993, the FCC deferred
the implementation of rate regulation from June 21, 1993 to October 1, 1993, and
extended the freeze on rates for cable services subject to regulation from
August 4, 1993 to November 15, 1993. On November 10, 1993, the Commission
further extended the freeze until February 15, 1994, and on February 8, 1994,
extended the expiration date of the freeze until May 15, 1994. On July 27, 1993,
the FCC moved the effective date of rate regulation back to September 1, 1993.
Additionally, among other things, the FCC permitted cable operators to structure
rates and service offerings up until September 1, 1993 without prior notice to
subscribers.

On July 16, 1993, the FCC issued a Notice of Proposed Rulemaking to add the
regulatory requirements to govern cost-of-service showings that cable operators
may submit under this provision to justify rates above the benchmarks. On
February 22, 1994, the Commission adopted interim rules to govern the cost of
service proceedings.

On March 30, 1994, the Commission released a Further Notice of Proposed
Rulemaking in connection with its cost of service regulations. In that Notice,
the Commission proposed to limit the price a cable operator may recover in
transactions with its affiliates. The proposal, if adopted, could adversely
affect the Company's transactions with certain cable operators, including
Tele-Communications, Inc. and Time Warner, Inc. which are affiliates of the
Company. On July 1, 1994, the Company filed comments opposing this proposal. The
Commission decided not to implement the changes.

The FCC on November 10, 1994 reversed its policy regarding rate regulation
of packages of "a la carte" services. "A la carte" services that are offered in
a package will now be subject to rate regulation by the FCC. In light of the
uncertainty created by the various criteria that the FCC previously applied to
"a la carte" packages, the FCC, in those cases in which it was not clear how the
FCC's previous criteria should have been applied to the package at issue, and
where only a "small number" of channels were moved from a previously regulated
tier to the package, will allow cable operators to treat existing packages as
New Product Tiers ("NPTs") as discussed below.

The FCC, in addition to revising its rules governing "a la carte" channels,
also on November 10, 1994 revised its regulations governing the manner in which
cable operators may charge subscribers for new cable programming services. The
FCC instituted a three-year flat fee mark-up plan for charges relating to new
channels of cable programming services in addition to the present formula for
calculating the permissible rate for new services. Commencing on January 1,
1995, operators may charge for new channels of cable programming services added
after May 14, 1994 at a markup of 20 cents per channel over actual programming
costs, but may not make adjustments to monthly rates for these new services
totaling more than $1.20, plus an additional 30 cents solely for programming
license fees, per subscriber over the first two years of the three-year period.
Cable operators may charge an additional 20 cents in the third year only for
channels added in that

10
<PAGE> 12

year. Cable operators electing to use the 20 cent per channel adjustment may not
take a 7.5% mark-up on programming cost increases, which is permitted under the
FCC's current rate regulations. The FCC requested further comment on whether
cable operators should continue to receive the 7.5% mark-up on increases in
license fees on existing programming services.

Additionally, the FCC will permit cable operators to offer NPTs at rates
which they elect so long as, among other conditions, other service tiers that
are subject to rate regulation are priced in conformity with applicable FCC
regulations and cable operators do not remove programming services from existing
tiers and offer them on the NPT.

The constitutionality of these provisions has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld the constitutionality of these
provisions. An appeal of that decision is pending in the U.S. Court of Appeals
for the District of Columbia Circuit. Appeals of the Commission's implementing
regulations have also been taken to the United States Court of Appeals for the
District of Columbia Circuit. The Company cannot predict the ultimate outcome of
the litigation.

Must Carry and Retransmission Consent

The 1992 Act contains provisions that would require cable television
operators to devote up to one-third of their channel capacity to the carriage of
local broadcast stations and provide certain channel position rights to the
local broadcast stations. The 1992 Act also includes provisions governing
retransmission of broadcast signals by cable systems, whereby retransmission of
broadcast signals would require the broadcaster's consent and provides each
local broadcaster the right to make an election between must carry and
retransmission consent. The retransmission consent provisions of the 1992 Act
became effective on October 5, 1993.

On March 11, 1993, the Commission adopted a Report and Order implementing
these provisions. The provisions could affect the ability and willingness of
cable systems to carry cable programming services. The Company has filed
litigation challenging the provision as unconstitutional (see "Legal
Proceedings -- Turner Broadcasting System, Inc. v. Federal Communications
Commission and the United States of America").

Program Access

On April 1, 1993, the Commission issued regulations implementing a
provision of the 1992 Act that, among other things, makes it unlawful for a
cable network, in which a cable operator has an attributable interest, to engage
in certain "unfair methods of competition or unfair or deceptive acts or
practices," the purpose and effect of which is to hinder significantly, or
prevent, any multichannel video programming distributor from providing satellite
cable programming or satellite broadcast programming to cable subscribers or
consumers. The provisions contain an exemption for any contract that grants
exclusive distribution rights to a person with respect to satellite cable
programming that was entered into on or before June 1, 1990. While the Company
cannot predict the regulations' full effect on its operations, they may affect
the rates charged by the Company's cable programming services to its customers
and could affect the terms and conditions of the contracts between the Company
and its customers.

The constitutionality of this provision has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld this provision. An appeal of that
decision is pending in the United States Court of Appeals for the District of
Columbia Circuit. Appeals of the Commission's implementing regulations have also
been taken to the United States Court of Appeals for the District of Columbia
Circuit. The Company cannot predict the ultimate outcome of the litigations.

Regulation of Carriage Agreements

The 1992 Act contains a provision that requires the FCC to establish
regulations governing program carriage agreements and related practices between
cable operators and video programming vendors, including provisions to prevent
the cable operator from requiring a financial interest in a program service as a
condition of carriage and provisions designed to prohibit a cable operator from
coercing a video programming vendor to

11
<PAGE> 13

provide exclusive rights as a condition of carriage. On October 22, 1993, the
Commission issued regulations implementing this provision. The Company at this
time cannot predict the effect of this provision on its operations.

The constitutionality of this provision has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court upheld the constitutionality of this
provision. An appeal of that decision is pending in the United States Court of
Appeals for the District of Columbia Circuit. The Company cannot predict the
outcome of the litigation.

Ownership Limitations

Section 11 of the 1992 Act directed the Commission to prescribe rules and
regulations establishing limits on the number of cable subscribers a person is
authorized to receive by cable systems owned by such person and the number of
channels that can be occupied by video programmers in which a cable operator has
an attributable interest. The Commission must also consider the necessity of
imposing limitations on the degree to which multichannel video programming
distributors may engage in the creation or production of video programming.

On December 28, 1992, the FCC issued a Notice of Proposed Rulemaking and
Notice of Inquiry with respect to these provisions. On October 22, 1993, the FCC
adopted a Second Report and Order that established a 40% limit on the number of
channels that may be occupied by programming services in which the particular
cable operator has an attributable interest. The Company is subject to this
provision. The FCC has also established a national limit of 30% on the number of
homes passed that any one person can reach through cable systems owned by such
person, but stayed the implementation of that provision pending judicial review
of its constitutionality. Petitions for reconsideration are pending. The Company
cannot at this time predict the effect of this provision or of these proposals
on its operations.

The constitutionality of these provisions has been challenged in litigation
filed in the United States District Court for the District of Columbia. On
September 27, 1993, the district court found the national limit on homes passed
unconstitutional, but upheld the constitutionality of the channel capacity
limits. An appeal of that decision is currently pending in the United States
Court of Appeals for the District of Columbia Circuit. Appeals of the
Commission's implementing regulations have also been taken to the United States
Court of Appeals for the District of Columbia Circuit. The Company cannot
predict the ultimate outcome of the litigations.

Sports Migration

The 1992 Act directs the FCC to submit an interim report by July 1, 1993
and a final report by July 1, 1994 to Congress on the migration of sports
programming from the broadcast networks to cable networks and cable
pay-per-view. On June 30, 1994, the FCC issued its final report in which it
recommended that no action by Congress was necessary.

CABLE NETWORK CROSS-OWNERSHIP

Under current FCC regulations, television broadcast networks are not
permitted to own cable systems. On June 17, 1992, the FCC voted to modify its
regulations to permit television broadcast networks to own cable systems so long
as a network's owned systems have less than 10% of cable subscribers nationally
and have less than 50% of the subscribers in an individual local market. The
Company cannot predict the effect, if any, of this change on its operations.

The Copyright Act provides for the grant to cable systems of compulsory
licenses for carriage of distant, non-network copyrighted programming (as
typically originally transmitted by a broadcast television station). The
Copyright Act also provides for payments of royalty fees by the cable systems
for the benefit of copyright owners or licensors, which fees are payable for the
privilege of retransmitting such programming to their

12
<PAGE> 14

subscribers. Under the Copyright Act, the amount of such royalty payments is
generally based upon a formula utilizing the amount of the system's semi-annual
gross receipts and the number of distant non-network television signals carried
by the system. Therefore, cable systems that carry TBS SuperStation must
contribute to the Copyright Office for distribution. However, no royalties are
paid by cable systems in connection with their carriage of TNT, the Cartoon
Network, TCM, CNN or Headline News.

There have been several legislative initiatives in Congress during the past
several years to alter the present compulsory copyright license system provided
under the Copyright Act, but none have been adopted into law. In October 1988,
the FCC recommended that Congress phase out the compulsory license. The FCC, in
its July 1990 Report to Congress, also proposed that Congress should repeal the
compulsory copyright license under certain circumstances. The Company cannot
predict the ultimate impact on the competitive position of TBS SuperStation if
legislation repealing the compulsory license were enacted.

SATELLITE AND MICROWAVE REGULATION

The Company operates various satellite transmission and reception equipment
in the vicinity of its offices in Atlanta, at various bureau locations and at
the sites of special events such as sporting events and breaking news sites.
These radio transmission facilities are required to be licensed by the FCC prior
to use and their operation must comply with applicable FCC regulations.

EMPLOYEES

At December 31, 1994, the Company and its wholly-owned subsidiaries had
approximately 6,000 full-time employees.

TEC and certain of its subsidiaries are signatories to collective
bargaining agreements with two unions. These agreements cover approximately 45
employees of TEC and its affected subsidiaries. One agreement expires in 1997.
The other is pending renegotiation after expiring in 1994. This new agreement is
expected to expire in 1997 also. In addition, certain subsidiaries of the
Company are signatories to one or more of the following collective bargaining
agreements: the Writers Guild of America Basic Agreement, the Directors Guild of
America Basic Agreement, the Screen Actors Guild Basic Agreement, the American
Federation of Television and Radio Artists Network Television Code, the
International Alliance of Theatrical Stage Employees Agreement, the American
Federation of Musicians Basic Agreement, the Union of British Columbia
Performers Agreement, the British Actors Equity Association Agreement and/or a
member of the Alliance of the Motion Picture and Television Producers.

ITEM 2. PROPERTIES

The Company owns CNN Center, a hotel and office complex in Atlanta,
Georgia, which houses the Company's corporate offices, certain operations of
CNN, Headline News and CNN International and the operations of certain other
subsidiaries. The Company subleases until December 27, 2043, a parking facility
next to the complex with approximately 2,000 parking spaces.

The Company also manages and operates the Omni Coliseum pursuant to an
operating agreement which expires in October 2002. The agreement requires the
Company to apply certain revenues generated by the operation of the Omni
Coliseum toward payment of the revenue bonds issued to finance the acquisition,
construction and equipping of the Omni Coliseum.

In addition to CNN Center, the Company owns buildings of approximately
205,000 square feet on approximately 32 acres of land in Atlanta, Georgia. The
primary building currently houses the studios and offices of TBS SuperStation,
TNT, the Cartoon Network and TCM. In addition, adjacent to the primary building
are twelve seven-meter, two ten-meter, two eleven-meter and one fifteen-meter
earth stations used to transmit and monitor the signals of TBS SuperStation,
TNT, the Cartoon Network, TCM, CNN and

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<PAGE> 15

Headline News to various satellites and to receive satellite feeds for use by
CNN and Headline News, and five smaller operative antennas for receiving
backhaul from various satellites.

The Company also owns a building of approximately 85,000 square feet in
Atlanta, Georgia. A portion of the building is used for general purposes and the
remainder is available for lease to unaffiliated third parties. The Company also
leases office or studio space in major cities around the United States and
abroad which is used by the Company.

The Company owns a building of approximately 90,000 square feet in Los
Angeles. The building is used primarily for animation studios and office space
associated with the operations of Hanna-Barbera.

The Hawks currently play their home games and occupy locker room and
storage space at the Omni Coliseum. The space is rented from a wholly-owned
subsidiary of the Company which operates the Omni Coliseum for an amount equal
to 10% of net gate receipts.

ANLBC leases office, locker room and storage space (aggregating
approximately 70,000 square feet), and the Braves play all home games in the
Atlanta-Fulton County Stadium pursuant to a lease running through December 31,
1996. This lease gives ANLBC priority in the scheduling of baseball games,
exclusive year-round concession rights in the stadium and the non-exclusive
right to use the stadium for other events. Lease payments are specified
percentages of gate receipts and concession sales with a minimum of $650,000 per
year.

The Braves also lease facilities for use by its farm clubs in Richmond,
Virginia; Greenville, South Carolina; Macon, Georgia and its spring training
facility in West Palm Beach, Florida.

ITEM 3. LEGAL PROCEEDINGS

LITIGATION

Turner Broadcasting System, Inc. v. Federal Communications Commission and The
United States of America

On October 5, 1992, the Company filed a lawsuit in the United States
District Court for the District of Columbia challenging the provisions of the
Cable Television Consumer Protection and Competition Act of 1992 (the "1992
Act") that would require cable television operators to devote up to one-third of
their channel capacity to the carriage of local broadcast stations and provide
certain channel positioning rights to local broadcast stations (see
"Business -- Regulation -- Cable Regulation -- Must Carry and Retransmission
Consent"). The Company's complaint alleges that these provisions violate the
First Amendment of the United States Constitution. The Company cannot predict
the outcome of the litigation at this time. Under a provision of the 1992 Act,
the case was heard by a three-judge court. On April 8, 1993, the Court upheld
the constitutionality of these provisions by a 2-1 vote. On June 17, 1994, the
United States Supreme Court vacated the District Court's ruling and remanded the
case for further proceeding. The Company is pursuing its claims.

United States of America v. Cable News Network, Inc. and Turner Broadcasting
System, Inc.

In October and November of 1990, Cable News Network, Inc. ("CNN") was
involved in investigating and reporting a story concerning the potential
government audio taping of telephone calls made by General Manuel Noriega from
his cell in the Miami Correctional Center, including the taping of conversations
with his attorneys and defense team. CNN obtained copies of some of the alleged
tapings and telecast segments thereof. Judge William M. Hoeveler, United States
District Court for the Southern District of Florida, entered orders on November
8, 1990 and November 9, 1990 which temporarily prohibited the telecast of
Noriega's privileged attorney-client conversations. Judge Hoeveler appointed a
special prosecutor, Robert F. Dunlap, to investigate whether CNN violated his
Orders in a telecast on November 9, 1990, and to prepare an application of an
Order to Show Cause "why those entities and individuals responsible for" the
telecast should not be held in contempt of the Court's Orders. On January 15,
1993, CNN was advised by Special Prosecutor Dunlap that

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<PAGE> 16

it was a target of a grand jury investigation into these alleged contempts. CNN
responded to grand jury subpoenas issued at that time. On March 30, 1994, CNN
was charged with criminal contempt by Special Prosecutor Dunlap and pleaded
innocent at an arraignment before Judge Hoeveler. A four-day trial was conducted
from September 13 through September 16, 1994. On November 1, 1994, the Court
issued an opinion finding CNN in criminal contempt of orders of the Court issued
during November 1990. It was the conclusion of the trial judge that CNN had
willfully violated lawful orders of the Court not to telecast audio tapes in the
possession of CNN. CNN maintained it had a right under the First Amendment to
telecast the audio tapes and that the telecasting of the specific audio tape was
not in violation of any of the Court's orders. On December 19, 1994, CNN agreed
to resolve the matter by telecasting a statement that it erred in defying the
Court's orders issued on November 8 and 9, 1990 and paying a $100 fine and court
costs of $85,000.

MUSIC LICENSES

In the television industry, programming is usually obtained from suppliers
lacking the necessary license to perform publicly the music associated with the
programming. Those performance rights are traditionally secured by obtaining
blanket licenses to the entire repertories. Such blanket licenses are held by
music performance societies, principally the American Society of Composers,
Authors and Publishers ("ASCAP") and Broadcast Music, Inc. ("BMI" and together
the "Societies").

As a local television station, TBS SuperStation has music licenses with
both ASCAP and BMI and has paid monies pursuant to those licenses. In 1986, in
connection with an audit for the years 1981 and 1982, ASCAP indicated that it
believed the Company owed an additional $800,000 under that license. The Company
denied that it had any additional liability, and the matter has remained in
negotiation. In January 1989, ASCAP threatened to pursue the same demand for
additional payments for the entire period 1981-88 and contended that the
additional payment would represent approximately $6 million. The Company again
denied any additional liability.

In September 1988, the Company made formal applications for licenses from
ASCAP and BMI for all of its programming services. The Company currently has an
agreement with BMI. Under antitrust consent decrees, if any entity seeking a
license from ASCAP or BMI cannot reach agreement with the Societies as to the
fee associated with that license, it is entitled to ask the United States
District Court for the Southern District of New York to establish such a fee. On
January 13, 1989, the Company filed an application regarding ASCAP asking that a
fee be set for the period commencing October 3, 1988. The Court has set interim
fees as a result of the Company's application.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There were no matters submitted to a vote of security holders during the
fourth quarter of 1994.

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<PAGE> 17

EXECUTIVE OFFICERS OF THE COMPANY

The following table lists the executive officers of the Company, their ages
and their positions as of February 28, 1995:

<TABLE>
<CAPTION>
NAME AGE POSITION
------------------------------ --- ----------------------------------------------------
<S> <C> <C>
R. E. Turner.................. 56 Chairman of the Board of Directors and President
Christian L. Becken........... 41 Vice President and Treasurer
William S. Ghegan............. 46 Vice President, Controller and Chief Accounting
Officer
William H. Grumbles*.......... 45 Vice President -- Worldwide Distribution
Elahe Hessamfar............... 41 Vice President and Chief Information Officer
Steven J. Heyer............... 42 Vice President -- Advertising Sales and Marketing
W. Thomas Johnson............. 53 Director and Vice President -- News
Steven W. Korn................ 41 Vice President, General Counsel and Secretary
Terence F. McGuirk............ 43 Director and Executive Vice President
Wayne H. Pace................. 48 Vice President -- Finance and Chief Financial
Officer
Scott M. Sassa................ 36 Director and Vice President -- Turner Entertainment
Group
William M. Shaw............... 50 Vice President -- Administration
Julia W. Sprunt*.............. 41 Vice President -- Marketing and Communications
</TABLE>

---------------

* William H. Grumbles and Julia W. Sprunt are married to each other.

The executive officers of the Company are elected by the Board of Directors
to serve until their successors are elected and qualified. The following is a
brief description of the business experience of the executive officers of the
Company for at least the past five years.

R. E. Turner has been Chairman of the Board, President and controlling
shareholder of the Company since 1970.

Christian L. Becken joined the Company in December 1983 as Vice President
of Financial Planning and was promoted to Vice President and Treasurer in 1986.

William S. Ghegan, who joined the Company as Corporate Controller in 1985,
was promoted to Vice President, Controller and Chief Accounting Officer in 1987.
Formerly, he was a Senior Manager with Price Waterhouse, an international
accounting firm, from 1979 to 1985.

William H. Grumbles, who joined the Company in 1989 as Executive Vice
President of Turner Network Sales, Inc. ("TNS"), previously known as Turner
Cable Network Sales, Inc. ("TCNS"), was promoted to President of Turner
International, Inc. in 1991 and Vice President -- International Sales of the
Company in 1992. In 1993, his title became Vice President -- Worldwide
Distribution. Previously, he served as Vice President -- Affiliate Relations for
Home Box Office.

Elahe Hessamfar joined the Company in 1993 as Vice President and Chief
Information Officer. Previously Ms. Hessamfar was Vice President, Information
Systems for PacBell Directory from 1987 until joining the Company.

Steven J. Heyer joined the Company in May 1994 as Vice
President -- Advertising Sales and Marketing. He also serves as President of
Turner Broadcasting Sales, Inc. Mr. Heyer was President and Chief Operating
Officer of Young & Rubicam Inc., a worldwide advertising agency from September
1992 until joining the Company. From 1977 until September 1992 he was employed
with the management consulting firm of Booz, Allen & Hamilton, Inc., where he
served as Senior Vice President and Managing Partner of the New York office of
the firm.

W. Thomas Johnson joined the Company in 1990 as Vice President -- News. He
also serves as President of CNN. Previously, Mr. Johnson was Chairman of the Los
Angeles Times from 1989 until joining the Company, and also Vice Chairman of the
Times Mirror Company from 1987 until joining the Company. From 1980 he had
served as Publisher and Chief Executive Officer of the Los Angeles Times.

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<PAGE> 18

Steven W. Korn joined the Company in September 1983 as Assistant Vice
President and Deputy General Counsel. He became Vice President in 1986,
Secretary in 1987 and General Counsel in 1988. Formerly, he was an attorney with
the law firm of Troutman Sanders.

Terence F. McGuirk joined the Company in 1972 as an Account Executive. In
1975, he assumed the duties of Director of Cable Relations and three years later
became the Director of Special Projects. He was promoted to Vice President of
the Company in 1979 and was elected as a director in 1987. Mr. McGuirk was
promoted to Executive Vice President in 1990.

Wayne H. Pace joined the Company in July 1993 as Vice President -- Finance
and Chief Financial Officer. From 1981 until July 1993, he was a partner with
Price Waterhouse, an international accounting firm.

Scott M. Sassa rejoined the Company in 1988 as Executive Vice President of
TNT, Inc. He became Vice President -- Entertainment Networks in 1990 and was
elected a director in 1992. In 1994, his title became Vice President -- Turner
Entertainment Group. Mr. Sassa also serves as President -- Turner Entertainment
Group, Inc. Before rejoining the Company, Mr. Sassa served as Vice President of
New Business Development of Ohlmeyer Communications Company in 1987 and prior to
that as Vice President of Network Management at Fox Broadcasting Company.

William M. Shaw joined the Company in 1981 as Director of Personnel and was
promoted to Vice President -- Personnel in 1982. He was promoted to Vice
President -- Administration in 1991. Previously, he served as Director of
Personnel at Siemens-Allis Corp.

Julia W. Sprunt, who joined the Company in 1981 as a Marketing Manager of
TCNS, became Director -- Southeast Region of TCNS in 1985. She was promoted to
Vice President -- Western Region of TCNS in 1986 and became Senior Vice
President of TNS in 1987. Ms. Sprunt was promoted to Vice President -- Marketing
of TBS SuperStation in 1989 before becoming Vice President -- Corporate
Marketing and Communications in 1990.

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PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Information regarding the principal markets on which the Company's two
classes of common stock are traded, the high and low sales price for the stock
on the American Stock Exchange for each quarterly period during the past two
years, the Company's dividend policy and the approximate number of holders of
each class of the common stock at December 31, 1994, is included under the
caption entitled "Investor Information" on page 55 of the 1994 Annual Report to
Shareholders and is incorporated herein by reference.

ITEM 6. SELECTED FINANCIAL DATA

A summary of selected financial data for the Company for the five years
ended December 31, 1994 is included under the caption entitled "Selected
Financial Data" on page 30 of the 1994 Annual Report to Shareholders and is
incorporated herein by reference.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The Company reported consolidated revenue of approximately $2.8 billion for
the year ended December 31, 1994, a 46% increase over the same period last year.
Operating profit, defined as income before interest expense, interest income,
income taxes, extraordinary items, and the cumulative effect of a change in
accounting principle, decreased 5% from 1993 to $288 million. The Company
realized net income of $21 million, which included an extraordinary charge of
$25 million, net of tax benefits, for the early redemption of the Company's 12%
Senior Subordinated Debentures due 2001 (the "Subordinated Debentures"). Income
before this charge and the provision for income taxes was $79 million, or a 34%
decrease from 1993, which was before a $306 million non-recurring charge for the
cumulative effect of a change in accounting for income taxes.

The consolidated financial statements and all related information included
in the 1994 Annual Report to Shareholders incorporated herein by reference
should be read in conjunction with the following review. See the financial
statements set forth on pages 31 through 52 of the 1994 Annual Report to
Shareholders, incorporated herein by reference. For a discussion of regulatory
and legislative matters affecting the Company, refer to Part I -- Item 1,
"Business -- Regulation."

OVERVIEW

The Company's present operations and future prospects are influenced by
many factors, primarily the growth of the cable television and motion picture
production and distribution industries and the economic climate both in the
United States and abroad, as well as the availability of programming for its
entertainment and news networks. Additionally, government regulation and
information technology changes relating to the entertainment and media
industries also influence domestic and international prospects.

U.S. CABLE TELEVISION INDUSTRY

The growth of the Company's Entertainment and News Segments is influenced
by the growth of the U.S. cable industry since that medium represents the
principal distribution system for TBS SuperStation, TNT, the Cartoon Network,
CNN and Headline News. At the end of 1994, homes subscribing to cable television
service in the United States reached approximately 63 million, which represented
66% of all U.S. television households and a 1% increase over 1993. Homes served
by cable television are expected to grow through 1997 (the last year for which
estimates are available) and are expected to represent approximately 69% of all
U.S. television households by the end of that year. The growth of the Company's
Entertainment and News Segments is also influenced by the channel capacity of
individual cable system operators.

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MOTION PICTURE AND TELEVISION PRODUCTION AND DISTRIBUTION INDUSTRY

The success of the Company's theatrical motion picture and television
programming is primarily dependent on viewer preference, which is unpredictable
and subject to change. In addition, filmed entertainment operating results
fluctuate based on the time of year, release dates and viewership levels.
Release dates are contingent upon several factors, including holiday periods and
competition in the market.

ECONOMIC CLIMATE

The state of the U.S. economy influences the results of the Entertainment
Networks and the News Segment as those operations derive a significant portion
of their revenues from advertising, which is sold largely within three to nine
months of airing and which, under certain conditions, can be cancelled by the
buyers. Overall, domestic advertising revenues, excluding those generated in
connection with the Goodwill Games, totaled $896 million in 1994, $828 million
in 1993 and $750 million in 1992, representing 32%, 43% and 42%, respectively,
of total revenues in those years.

The impact of changes in the economy is mitigated by the fact that the
Company derives a portion of its revenues from subscription fees, which are
relatively resistant to short-term domestic economic factors. Domestic
subscription fees from cable system operators, which totaled $556 million in
1994, $502 million in 1993 and $429 million in 1992, representing 20%, 26% and
24% of total revenues in those respective years, are generally received under
contracts with three to five year terms.

PROGRAMMING

The Company continues to make significant investments in original, sports
and licensed entertainment programming and in newsgathering capabilities to
increase the viewership of its Entertainment and News Networks. The
Entertainment Networks use high-profile original movies, specials and sporting
events to define identity and provide a base of highly promotable programming
from which to attract viewers to their entire slate of offerings. The Company
has acquired programming rights to two of the most promotable sporting
franchises available. Under contracts entered into with the National Football
League ("NFL"), TNT telecast three pre-season and nine regular season NFL games
in 1994 and 1993. The 1994 contract includes provisions to telecast a similar
number of pre-season and regular season games each year through 1997. Since
1989, TNT has also telecast NBA regular season and playoff games. The Company
has entered into a new contract with the NBA covering the 1994-1995 through
1997-1998 seasons. Under the new contract, TNT and TBS SuperStation will
telecast NBA regular season and playoff games. In addition, affiliations with
sporting events such as the 1992 and 1994 Winter Olympics, telecast on TNT, and
the Company's own Goodwill Games, telecast on TBS SuperStation, provide exposure
on an international level.

In 1990, the Company negotiated a long-term television license agreement
with MGM-Pathe Communications Co. (now Metro-Goldwyn-Mayer Inc. ("MGM")) for
approximately 1,000 feature films, over 300 cartoon shorts and selected
television series.

In December 1991, the Company acquired a 50% interest in HB Holding Co., a
newly-formed joint venture. The Joint Venture, through a merger, acquired
Hanna-Barbera, Inc. and the HB Library, which provided the Company access to a
library of over 3,000 half-hours of animated programming. On December 29, 1993,
the Company acquired the remaining 50% interest in the Joint Venture. Coupled
with the 1,850 cartoon episodes in the TEC Film Library, the Company now has
access to a vast source of animated programming.

On December 22, 1993, the Company acquired all of the equity interests in
Castle Rock, a motion picture and television production company. In addition, on
January 28, 1994, the Company completed the acquisition of New Line, an
independent producer and distributor of motion pictures. See Note 2 of Notes to
Consolidated Financial Statements in the 1994 Annual Report to Shareholders
incorporated herein by reference.

The Company anticipates that New Line, Castle Rock and Turner Pictures
Worldwide will release theatrically an aggregate of up to 40 films beginning in
1995. In 1994, these entities released an aggregate of

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26 films. After theatrical release, the films will be distributed by the Company
primarily in the pay-per-view, home video, television and other syndication and
basic and premium cable network markets.

When combined with existing arrangements for programming and the extensive
library of feature films, cartoons and televisions series, these new
acquisitions continue to build core programming for the Entertainment Networks
and allow for control of programming from production through various stages of
distribution. The Company will continue to use this programming for new
networks. Programming costs in the News Segment primarily relate to personnel,
travel costs and satellite and communications access. CNN presently operates
nine news bureaus in the United States and 20 bureaus in countries outside the
United States. In the near future, the Company anticipates expanding staff and
facilities internationally, increasing staff working on breaking news stories,
and modifying its daily programming mix as necessary, all with the objective of
increasing viewership.

INTERNATIONAL

While most of the Company's revenues are derived from domestic distribution
of its products and services, the Company views the international market as an
important source for future revenue growth.

Historically, the Company has derived the majority of its international
revenues from syndication and licensing to television stations, the sale of home
videos of feature films from the TEC Film Library and, to a lesser degree, from
theatrical release of original productions made for TNT. These operations
continue to contribute an important revenue stream to the Company, while
revenues from the Company's newly acquired theatrical production and
distribution entities, New Line and Castle Rock, have also contributed to 1994
revenues. In 1994, international revenues, consisting of broadcast fees
(including advertising), subscription, syndication, home video, theatrical and
licensing and merchandising, were $393 million. This is an increase of 64% over
1993.

The Company believes there is great potential for growth internationally in
the area of satellite delivered programming. Currently, CNN International is the
Company's predominant programming vehicle outside the United States. CNN
International is distributed via satellite primarily to cable systems,
broadcasters, hotels and private satellite dish owners. Subscription levels in
Europe grew from 15 million households at the end of 1991 to 57 million
households by the end of 1994. CNN International's programming is generally
either CNN product as viewed in the United States or in a reformatted version
which conforms to retransmission restrictions imposed by certain agreements
under which CNN collects international news stories from certain overseas
suppliers. It also includes segments specifically produced for the international
markets. Revenues, which are derived from subscriber fees, broadcast fees, and
advertising sales, are principally generated from Europe. Total revenues from
CNN International increased from $93 million in 1993 to $112 million in 1994. It
is anticipated that these revenues will continue to increase as the Company
capitalizes on the growing international reputation of CNN and the increased
international opportunities to market the service, both in terms of increases in
international advertising and in terms of overall growth in international
television media and markets.

In January 1991, the Company launched TNT Latin America, a 24-hour per day
trilingual entertainment satellite-delivered program service serving Latin
America and the Caribbean. Relying largely on existing programming from the TEC
Library, this service allows the user to customize the service using Spanish,
Portuguese and English audio tracks and subtitles. Contracts for carriage of
this service are offered by the Company's sales and marketing organizations to
operators of cable systems and similar technologies. Revenues from this service,
which in many areas is being marketed together with CNN's news programming, are
almost entirely from subscription fees based on contracts with cable operators
which specify minimum subscription levels.

In March 1993, the Company acquired a 27.5% limited partnership interest in
n-tv, a 24-hour German language news channel. The partnership provides for
cooperation in newsgathering, exchange of news footage and cooperative access to
facilities. At December 31, 1994, the Company's ownership interest in n-tv was
30.3%. For additional information concerning the acquisition of the ownership
interest in n-tv, see Note 2 of

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Notes to Consolidated Financial Statements on page 37 in the Company's 1994
Annual Report to Shareholders incorporated herein by reference.

In April 1993, the Company launched Cartoon Network Latin America, a
24-hour per day satellite-delivered program service in Latin America utilizing
animated programming from both the HB Library and TEC Library. In September
1993, the Company launched TNT & Cartoon Network Europe originating in the
United Kingdom, and distributed throughout Europe via satellite. In October
1994, the Company launched TNT & Cartoon Network Asia, a 24-hour per day program
service utilizing animated programming and film product, a portion of which is
dubbed audio or subtitled in English, Mandarin or Thai, with more languages to
be added in later years, originating in Hong Kong and distributed throughout
Asia via satellite. All of these new networks have revenue streams from
advertising and subscription fees.

The Company believes international markets provide substantial
opportunities for revenue growth in the future. Such growth will be
significantly influenced by, among other things, competition, governmental
regulation, access to satellite transmission facilities, improvements in
encryption technologies, the continued growth of distribution system
alternatives to over-the-air broadcast technology, the availability of effective
intellectual property protection and local market economic conditions in the
countries served.

LIQUIDITY AND CAPITAL RESOURCES

SOURCES AND USES OF CASH

As part of its ongoing strategic plan to produce programming for ultimate
use on its Entertainment Networks, the Company has invested, and will continue
to invest, significant amounts of capital for network and television programming
development and filmed entertainment and programming acquisition. Historically,
the Company has relied primarily on debt to finance these initiatives and as a
result has maintained a high degree of financial leverage. This approach
continued in 1994 enabling the Company to implement its growth plans. See Note 2
and Note 5 of the Notes to Consolidated Financial Statements included in the
1994 Annual Report to Shareholders incorporated herein by reference.
Additionally, see "Liquidity and Capital Resources -- Credit Facilities and
Financing Activities."

The Company expects that internally generated funds supplemented by
existing credit facilities and debt that may be issued pursuant to its shelf
registration filed in May 1993, as well as access to debt and equity markets,
will be sufficient to meet operating needs and scheduled debt maturities through
the end of 1995 and beyond.

Cash used for operations for the year ended December 31, 1994, aggregated
$82 million, including cash interest payments, net of cash interest received, of
$198 million. Significant sources of cash included borrowings of $500 million
under the 1994 Credit Agreement described below and of $350 million under the
1993 Credit Agreement described below, approximately $449 million of gross
proceeds from the issuance of the 7.4% Senior Notes (the "Senior Notes") and the
8.4% Senior Debentures (the "Senior Debentures" and together with the Senior
Notes, the "Securities") and $108 million from the sale of assets. Cash was
primarily utilized for the retirement of the Subordinated Debentures ($540
million, net of payments of accreted amounts) and the repayment of amounts
outstanding under the 1993 and 1994 Credit Agreements ($585 million). Cash of
$949 million was also utilized by the Company for original entertainment and
sports programming (including $433 million for theatrical productions, excluding
promotional and advertising costs). In addition, the Company used $140 million
(net of cash received) in completing a merger of a subsidiary with New Line
Cinema and invested an additional $17 million in the German limited partnership,
n-tv.

See the Consolidated Statements of Cash Flows for details regarding sources
and uses of cash, Note 2 of Notes to Consolidated Financial Statements for a
detailed discussion of the acquisitions, and Note 5 of Notes to Consolidated
Financial Statements for a detailed discussion of definitions, terms and
restrictive covenants associated with the Company's indebtedness, all of which
are included in the 1994 Annual Report to Shareholders incorporated herein by
reference.

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CREDIT FACILITIES AND FINANCING ACTIVITIES

The Company had approximately $2.5 billion of outstanding indebtedness at
December 31, 1994, of which $1.5 billion was outstanding under unsecured
revolving credit facilities with banks.

On July 1, 1993, the Company entered into a credit agreement (the "1993
Credit Agreement") with a group of banks pursuant to which such banks extended a
$750 million unsecured revolving credit facility. On December 15, 1993, the 1993
Credit Agreement was amended, among other things, to increase the amount
available for borrowing to $1.5 billion. Amounts available for borrowing or
reborrowing under this revolving facility will automatically decrease by $75
million as of the last business day of the calendar quarters ending March 31,
1998, June 30, 1998, September 30, 1998, and December 31, 1998, and by $150
million as of the last business day of each quarter thereafter until December
31, 2000, at which time the revolving credit facility will terminate. Under the
1993 Credit Agreement, amounts repaid under the revolving credit facility may be
reborrowed subject to borrowing availability. The amount of borrowing
availability is subject to other provisions of the 1993 Credit Agreement,
including requirements that (a) minimum ratios be maintained, as from time to
time are in effect, of funded debt to cash flow, cash flow to interest expense
and cash flow to fixed charges; and (b) there does not exist, and that such
borrowing would not create, a default or event of default, as defined. On
September 7, 1994, the banks participating in the 1993 Credit Agreement provided
a new $500 million unsecured revolving credit facility (the "1994 Credit
Agreement"). The terms and covenants that govern the new facility are identical
to those provided in the 1993 Credit Agreement. The 1994 Credit Agreement was
used in its entirety to partially finance the redemption of the Company's
Subordinated Debentures.

Amounts outstanding under the 1993 and 1994 Credit Agreements bear interest
at varying rates on the basis of different rate indices and the Company's
operating performance. Interest is payable at intervals specified in the Credit
Agreements. The interest rates of the credit agreements ranged from 4.13% to
9.00% during the year ended December 31, 1994. The Company pays fees of 3/8 of
1% per annum on the average unborrowed portion of the total amount available for
borrowing.

Approximately $1.5 billion of the Company's indebtedness bore interest on a
floating basis tied to short-term market indices. The Company has interest rate
swap agreements having a total notional principal amount of $480 million with
commercial banks to mitigate possible rising interest rates, all of which will
expire in the first quarter of 1995, after which time the Company will have no
interest rate swap agreements outstanding. Upon expiration of the swap
agreements, the Company will continue to assess the risks associated with
possible changes in interest rates and the need, if any, to mitigate such risks.
The weighted average receipt and payment rates associated with the swap
agreements were 6.46% and 9.02%, respectively, at December 31, 1994. The
incremental interest expense related to the swap agreements was $22 million in
1994. The Company designates these interest rate swaps as hedges of interest
rates and the differential paid or received on interest rate swaps is accrued as
an adjustment to interest expense as interest rates change. The Company has
exposure to credit risk, but does not anticipate nonperformance by the
counterparties to these agreements.

The 1993 and 1994 Credit Agreements contain restrictive covenants
(regarding, among other things, additional indebtedness, liens, guarantees,
dispositions, investments and dividend payments), and require the maintenance of
certain ratios, including funded debt to operating cash flow, operating cash
flow to fixed charges and operating cash flow to interest expense, as defined.
Furthermore, the terms of the 1993 and 1994 Credit Agreements provide for
acceleration of the indebtedness thereunder in the event of a change of control.
The 8 3/8% Senior Notes, the Senior Notes, the Senior Debentures and the zero
coupon subordinated convertible notes due 2007 provide each holder of such
securities with the right, at the holder's option, to require the Company to
purchase all or any portion of the holder's securities in the event of a change
of control, provided that with respect to the 8 3/8% Senior Notes, the Senior
Notes and the Senior Debentures, in addition to a change of control, such
securities must also be downgraded to below BB+ by Standard and Poor's
Corporation or Ba2 by Moody's Investors Service within 120 days of the change of
control for the holder to have the repurchase option. A change of control is
deemed to occur when neither R.E. Turner and his estate, heirs and legatees,
those parties who beneficially owned the Company's Class C Preferred Stock at
the date of the issuance of such securities nor any combination thereof have the
power to vote at least a majority of the voting power of the Company's voting
securities.

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On May 6, 1993, the Company filed a registration statement (the "Shelf
Registration") with the Securities and Exchange Commission to allow the Company
to offer for sale, from time to time, up to $1.1 billion of unsecured senior
debt securities or unsecured senior subordinated debt securities (together, the
"Debt Securities") consisting of notes, debentures or other evidence of
indebtedness. The Debt Securities may be offered as a single series or as two or
more separate series in amounts, at prices and on terms to be determined at the
time of the offering. The Debt Securities may be sold to or through one or more
agents designated from time to time. At December 31, 1994, $750 million of Debt
Securities had been issued pursuant to the Shelf Registration.

On February 3, 1994, the Company sold $250 million of the Senior Notes and
$200 million of the Senior Debentures under the Shelf Registration. The net
proceeds to the Company were approximately $246 million and $197 million,
respectively, after market and underwriting discounts. The Senior Notes and the
Senior Debentures bear interest at the rate of 7.4% and 8.4% per annum,
respectively, payable semi-annually on February 1 and August 1 of each year,
commencing on August 1, 1994. The Senior Notes are not redeemable at the option
of the Company. The Senior Debentures are redeemable, at the Company's option,
at any time after February 1, 2004, at the redemption price of 104.161% of the
principal amount, plus accrued and unpaid interest to the date of redemption,
which redemption price reduces over 10 years to a redemption price of 100% of
the principal amount in 2014 and thereafter. Each holder has the right to
require the Company to repurchase such holder's Securities in whole, but not in
part, at a redemption price, payable in cash, equal to 101% of the principal
amount, plus accrued and unpaid interest to the date fixed for redemption, upon
the occurrence of certain triggering events, including, without limitation, a
change of control, certain restricted payments or certain consolidations,
mergers, conveyances or transfers of assets, each as defined in the indenture.
The Company is not required to make mandatory redemption or sinking fund
payments with respect to the Securities prior to maturity.

The Company used substantially all of the net proceeds from the issuance of
the Securities to repay amounts outstanding under the 1993 Credit Agreement
incurred in connection with the acquisitions of Castle Rock and the remaining
50% interest in the Joint Venture.

By notice dated September 16, 1994, the Company called for redemption on
October 17, 1994, all of its outstanding Subordinated Debentures. The
Subordinated Debentures were redeemed in cash at a redemption price of 104.500%
of the principal amount plus accrued interest. The Company used its unsecured
revolving credit facilities to redeem the Subordinated Debentures, of which $537
million, net of unamortized discount of $3 million, was outstanding on the
redemption date. The redemption of the Subordinated Debentures resulted in an
extraordinary charge of $25 million, net of $16 million of tax benefits,
representing the redemption premium and the write-off of original issue
discount.

Scheduled principal payments for all outstanding debt for 1995 total
approximately $1.3 million, the majority of which relates to capital leases and
other debt.

The Company is currently in negotiations with a financial institution
whereby the Company will be able to sell on an ongoing basis and without
recourse up to $300 million of an undivided percentage ownership interest in a
designated pool of domestic cable and advertising accounts receivable. Proceeds
from the sale will be used to repay amounts outstanding under the Company's bank
credit facilities. The ongoing costs of the program are anticipated to be less
than those the Company would have otherwise incurred under the bank credit
facilities.

CAPITAL RESOURCES AND COMMITMENTS

During 1995, the Company anticipates making cash expenditures of
approximately $270 million for sports programming, primarily rights fees,
approximately $830 million for original entertainment programming (excluding
promotional and advertising costs) and approximately $120 million for licensed
programming. Also, during 1995, the Company expects to make total expenditures
of approximately $107 million for additional or replacement property and
equipment. Of the anticipated programming and capital expenditures described
above, firm commitments exist for approximately $530 million. Other capital
resource commitments consist primarily of lease obligations, some of which are
contingent on revenues derived from usage.

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Management expects to continue to lease satellite facilities, sports facilities
and office facilities not already owned by the Company.

Management expects to finance these commitments from working capital
provided by operations and financing arrangements with lessors, vendors, film
suppliers and additional borrowings.

RESULTS OF OPERATIONS -- 1994 VS. 1993

ENTERTAINMENT SEGMENT

Entertainment Segment revenue increased $839 million to $2.001 billion, of
which $621 million was contributed by the newly-acquired New Line, Castle Rock
and the consolidated operations of Hanna-Barbera. Together, New Line and Castle
Rock released 26 theatrical productions in 1994, two of which ultimately earned
over $100 million in gross box office receipts in 1994 and the first quarter of
1995. In addition, the Company now benefits from full ownership of the more than
3,000 half-hours of animation product in the Hanna-Barbera film library. Home
video revenues outside of the newly-acquired entities increased a total of $63
million, or 61%, primarily from strong domestic distribution in the sell-through
(consumer purchased) and rental markets. Advertising revenue increased $53
million, or 10%, to $608 million, due primarily to increased rates for TNT and
TBS SuperStation, and an increase in sports revenue associated with the coverage
of the NBA on TBS and the NBA and NFL on TNT. Subscription revenues increased
$37 million, or 12%, to $355 million, primarily through an increase in rates and
a higher number of subscribers. The remaining increase was related to revenues
contributed from the 1994 Goodwill Games of $32 million as well as increased
domestic licensing and merchandising revenues of $32 million, primarily related
to recent theatrical releases.

Operating profit (defined as income before interest expense, interest
income, income taxes, extraordinary items and the cumulative effect of a change
in accounting for income taxes) for the Entertainment Segment decreased $24
million to $119 million. The decrease included a $26 million increase in
operating losses related to the 1994 Goodwill Games, $32 million in expense from
TNT's telecast of the 1994 Winter Olympics and $9 million from increased
operating losses at the Company's new networks (which consist of the Cartoon
Network, Cartoon Latin America, TNT & Cartoon Network Europe, Turner Classic
Movies and TNT & Cartoon Network Asia). The operating results at these new
networks have been impacted by the effects of domestic channel capacity and
international advertising markets. At this time, the Company can not predict the
impact these external market factors will have on future operations. These
amounts were substantially offset by a $29 million decrease in other sports
programming expense, primarily NFL, and $12 million of decreased operating
losses at the production and distribution companies, including New Line, Castle
Rock and the consolidated operations of Hanna-Barbera, primarily due to
increased home video sales.

NEWS SEGMENT

News Segment revenue increased $68 million, or 11%, to $667 million,
primarily related to increased domestic subscription revenue of $28 million
primarily from the home satellite dish market and increased domestic advertising
revenue of $20 million as a result of higher viewership. The remaining increase
was related primarily to CNN International, where revenues increased $19 million
due to increased viewership worldwide.

Revenue increases outpaced increases in operating expenses related to
higher newsgathering costs and the expansion of CNN International. As a result,
operating profit for the News Segment increased $15 million to $227 million, a
7% increase compared to 1993.

OTHER

Revenue decreased $18 million, or 10%, to $164 million, primarily as a
result of reduced revenue for the Atlanta Braves due to the Baseball Strike.
Braves operating profit decreased $23 million. Of this amount,

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$14 million related to the Baseball Strike and the remainder was primarily due
to reduced pre-strike broadcast income. The Braves' results and a $13 million
increase in information technology and other infrastructure spending to support
the growth of the Company primarily accounted for the Other Segment's $38
million increase in operating losses, to $71 million overall. At this time the
Baseball Strike is still unresolved, and the estimated timing of resolution is
undeterminable. However, the Baseball Strike is not expected to have a material
adverse impact on the consolidated financial position or operations of the
Company in 1995.

EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION

Operating losses decreased $10 million due primarily to improved operating
results for n-tv and the Atlanta Hawks.

In June 1994, the Company sold its 37.4% equity investment in RHI
Entertainment, Inc. for approximately $108 million in cash and recognized a
pre-tax gain of approximately $22 million on the transaction.

Consolidated interest expense, net of interest income, increased
approximately $27 million primarily due to the increase in debt associated with
the purchase of Castle Rock and the remaining 50% interest in the Joint Venture
as well as assumed debt associated with New Line and a higher effective interest
rate primarily associated with the 1993 and 1994 Credit Agreements.

Extraordinary items represent $25 million, net of tax benefits, associated
with the early redemption of the Subordinated Debentures in 1994. The 1993
extraordinary items represent $11 million, net of tax benefits, associated with
the early termination of certain of the Company's bank credit facilities and the
redemption of the zero coupon subordinated convertible notes due 2004. See Note
5 of Notes to the Consolidated Financial Statements in the 1994 Annual Report to
Shareholders incorporated herein by reference.

The Company also reflected a $306 million non-recurring charge for the
cumulative effect of adopting Statement of Financial Accounting Standards No.
109 in 1993. This charge was primarily related to the TEC Library and, to a
lesser degree, the Company's 50% interest in the HB Holding Co.

As a result of the information discussed, the Company reported net income
of $21 million in 1994 ($0.08 net income per common share and common share
equivalent). This compares to a net loss of $244 million in 1993 ($0.92 net loss
per common share and common share equivalent).

RESULTS OF OPERATIONS 1993 VS. 1992

ENTERTAINMENT SEGMENT

Entertainment Segment revenue increased 8%, or $84 million. Advertising
revenue contributed $56 million to the advance, which reflected an increase in
the amount charged per thousand viewing homes on TBS SuperStation and TNT.
Subscription revenue increased $49 million, through an increase in the monthly
amount charged and a higher number of subscribers for TNT. These advances were
offset somewhat by a $26 million decrease in 1993 in domestic and international
home video revenue.

Operating profit for the Entertainment Segment decreased 6%, or $9 million,
to $143 million, despite significant revenue advances in the core networks.
Operating losses of $25 million in 1993 associated with new networks contributed
to the operating profit decrease. New networks consist of the Cartoon Network,
which was launched in 1992, and Cartoon Network Latin America and TNT & Cartoon
Network Europe, which were launched in 1993. Also contributing to the operating
profit decrease were a $21 million increase in original programming and related
promotion and advertising costs, $15 million in costs related to the theatrical
release of "Gettysburg," and increased selling, general and administrative
costs. These higher costs were offset somewhat by a $34 million decrease in home
video costs.

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NEWS SEGMENT

News Segment revenue increased 13%, or $68 million, to $599 million.
Advertising revenue contributed $29 million to the increase, up 11% from 1992,
primarily from an increase in the amount charged per thousand viewing homes
domestically. Subscription revenue contributed $31 million, up 16% from 1992,
due to an increase in the monthly amount charged for CNN and a higher number of
subscribers. CNN International contributed $93 million, or 16%, to total 1993
News Segment revenue due primarily to continued global expansion.

Operating profit for the News Segment increased 19% to $212 million. This
increase was due to the advances in revenue, offset by an increase in total
costs of $34 million. The total cost increase arose from higher production
costs, expenses associated with covering events in Somalia and Bosnia and higher
international sales costs.

OTHER

Other Segment revenues remained constant at $182 million. Increased Braves
home game and broadcasting revenue in 1993 were substantially offset by the
non-recurring effects of $12 million in Major League Baseball expansion fees
received in 1992.

Operating losses for this Segment declined to $33 million, a net decrease
of $4 million, primarily due to a $16 million charge related to discontinuance
of the Checkout Channel in 1992, offset somewhat by higher Braves team expenses
and other increases in general and administrative costs.

EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION

Equity in the losses of unconsolidated entities increased $16 million over
1992 results to $20 million. This increase arose primarily from the Company's
investments in new international ventures.

In March 1993, the Company acquired a 27.5% interest in n-tv, a 24-hour
German news channel. The Company's share of 1993 losses was approximately $19
million. See Note 2 of Notes to Consolidated Financial Statements in the 1994
Annual Report to Shareholders incorporated herein by reference.

Extraordinary items represent $11 million, net of tax benefits, associated
with the early termination of certain of the Company's bank credit facilities
and the redemption of the zero coupon subordinated convertible notes due 2004 in
1993. The 1992 extraordinary item of $44 million represents the utilization of
operating loss carryforwards. See Note 5 and Note 7 of Notes to Consolidated
Financial Statements in the 1994 Annual Report to Shareholders incorporated
herein by reference.

As a result of the information discussed, the Company reported a net loss
of $244 million in 1993 ($0.92 net loss per common share and common share
equivalent). This compares to net income of $78 million in 1992 ($0.30 net
income per common share and common share equivalent).

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Consolidated financial statements and notes thereto for the Company and the
report of the independent accountants, which are included on pages 31 through 53
of the 1994 Annual Report to Shareholders under the following captions listed
below, are incorporated herein by reference.

Consolidated Statements of Operations for the three years ended December
31, 1994.

Consolidated Balance Sheets at December 31, 1994 and 1993.

26
<PAGE> 28

Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the three years ended December 31, 1994.

Consolidated Statements of Cash Flows for the three years ended December
31, 1994.

Notes to Consolidated Financial Statements.

Report of Independent Accountants.

Management's Responsibility for Financial Statements.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

27
<PAGE> 29

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information relating to directors of the Company is set forth under the
caption entitled "Election of Directors" in the Company's 1995 Proxy Statement,
and is incorporated herein by reference. Certain information concerning the
executive officers of the Company is set forth in Part I of this Report on Form
10-K pursuant to General Instruction G(3) of Form 10-K under the caption
entitled "Executive Officers of the Company."

ITEM 11. EXECUTIVE COMPENSATION

Information regarding compensation of officers and directors of the Company
is set forth under the caption "Executive Compensation" in the Company's 1995
Proxy Statement, and is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Information regarding ownership of certain of the Company's securities is
set forth under the captions entitled "Security Ownership of Management" and
"Security Ownership of Certain Beneficial Owners" in the Company's 1995 Proxy
Statement, and is incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information regarding certain relationships and related transactions with
the Company is set forth under the caption entitled "Certain Relationships and
Related Transactions" in the Company's 1995 Proxy Statement, and is incorporated
herein by reference.

28
<PAGE> 30

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a)(1) Financial Statements

The financial statements set forth on pages 31 through 52 of the 1994
Annual Report to Shareholders are incorporated herein by reference (see Exhibit
13).

(a)(2) Financial Statement Schedule for the three years ended December 31, 1994

<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
-------- ---------------------------------------------------------------------------- ------
<S> <C> <C>
VIII Valuation and qualifying accounts and reserves.............................. 38
</TABLE>

The report of the Company's independent accountants with respect to the
above-referenced financial statement schedule appears on page 37 of this report.

All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes thereto.

(a)(3) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger, dated October 15, 1993, by and among the Company, NL
Acquisition Co., and New Line Cinema Corporation (filed as Exhibit 2.1 to the
Company's Form 8-K dated October 15, 1993, and incorporated herein by reference).
2.2 Form of Purchase Agreement, dated as of December 22, 1993, by and among the Company,
CR Acquisition Co., Castle Rock Entertainment, Inc., Rain Productions, Padnick
Productions, Inc., Rob Reiner Productions, Inc., Scheinman Productions, Inc., Shafer
Productions, Inc., Castle Rock Holding, Inc. and Group W Investments, Inc., (filed
as Exhibit 2.1 to the Company's Form 8-K dated December 22, 1993, and incorporated
herein by reference).
2.3 Form of Stock Purchase Agreement, by and among the Company, Apollo Investment Fund,
L.P. and HB Holding Co. (filed as Exhibit 2.3 to the Company's Registration
Statement on Form S-4 (Registration No. 33-51739) filed with the Commission on
December 29, 1993, and incorporated herein by reference).
3.1 Restated Articles of Incorporation of the Company (filed as Exhibit 3.1 to the
Company's Form 10-Q for the fiscal quarter ended June 30, 1994 (the "Second Quarter
1994 Form 10-Q")).
3.2 Bylaws of the Company, as amended on and through November 13, 1990 (filed as Exhibit
3.2 to the Company's Form 10-K for the fiscal year ended December 31, 1991 (the
"1991 Form 10-K"), and incorporated herein by reference).
4.1 Liquid Yield Option Notes Indenture, dated as of February 13, 1992, between the
Company and Security Pacific National Bank, as Trustee (filed as Exhibit 4.4 to the
1991 Form 10-K, and incorporated herein by reference).
4.2.1 Form of Note relating to the Company's 8 3/8% Senior Notes due July 1, 2013 (filed
as Exhibit 4(d) to the Company's Form 8-K dated June 16, 1993, and incorporated
herein by reference).
4.2.2 Form of Officers' Certificate establishing the terms of the Company's 8 3/8% Senior
Notes due July 1, 2013 (filed as Exhibit 4(e) to the Company's Form 8-K dated June
16, 1993, and incorporated herein by reference).
</TABLE>

29
<PAGE> 31

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
4.3.1 Form of Senior Indenture ("Senior Indenture"), dated as of May 15, 1993, between the
Company and The First National Bank of Boston, relating to senior debt securities
consisting of notes, debentures or other evidence of indebtedness in the aggregate
amount of $1,100,000,000 (filed as Exhibit 4(a) to the Company's Registration
Statement on Form S-3 (Registration No. 33-62218) filed with the Commission on May
6, 1993, and incorporated herein by reference).
4.3.2 Form of Subordinated Indenture ("Subordinated Indenture"), relating to senior
subordinated debt securities consisting of notes, debentures or other evidence of
indebtedness in the aggregate amount of $1,100,000,000 (filed as Exhibit 4(b) to the
Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with
the Commission on May 6, 1993, and incorporated herein by reference).
4.3.3 Form of the Company's Standard Multiple-Series Indenture Provisions relating to the
Senior Indenture and the Subordinated Indenture (filed as Exhibit 4(c) to the
Company's Registration Statement on Form S-3 (Registration No. 33-62218) filed with
the Commission on May 6, 1993, and incorporated herein by reference).
4.4 Form of Officers' Certificate establishing the terms of the Company's 7.40% Senior
Notes due February 1, 2004 with form of Note attached (filed as Exhibit 4(f) to the
Company's Form 8-K dated January 27, 1994, and incorporated herein by reference).
4.5 Form of Officers' Certificate establishing the terms of the Company's 8.40% Senior
Debentures due February 1, 2024 with the form of Debenture attached (filed as
Exhibit 4(g) to the Company's Form 8-K dated January 27, 1994, and incorporated
herein by reference).
4.6.1 Credit Agreement, dated as of July 1, 1993 ("1993 Credit Agreement"), between the
Company and The Chase Manhattan Bank (National Association), as agent (filed as
Exhibit 4.9.1 to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993,
and incorporated herein by reference).
4.6.2 Form of Amendment No. 1, dated as of December 1, 1993, to the 1993 Credit Agreement
(filed as Exhibit 4.6.2 to the Company's Registration Statement on Form S-4
(Registration No. 33-51739) filed with the Commission on December 29, 1993, and
incorporated herein by reference).
4.6.3 Form of Amendment No. 2, dated as of December 15, 1993, to the 1993 Credit Agreement
(filed as Exhibit 4.6.3 to the Company's Registration Statement on Form S-4
(Registration No. 33-51739) filed with the Commission on December 29, 1993, and
incorporated herein by reference).
4.6.4 Form of Consent and Agreement, dated as of December 21, 1993, relating to the 1993
Credit Agreement (filed as Exhibit 4.6.4 to the Company's Registration Statement on
Form S-4 (Registration No. 33-51739) filed with the Commission on December 29, 1993,
and incorporated herein by reference).
4.6.5 Amendment No. 3, dated as of June 30, 1994, among the Company, the banks listed
therein and The Chase Manhattan Bank (National Association), as Agent to the Credit
Agreement dated as of July 1, 1993 (filed as Exhibit 10.46 to the Company's Form
10-Q for the fiscal quarter ended September 30, 1994, and incorporated herein by
reference).
4.7 Credit Agreement, dated as of September 7, 1994, among the Company, the banks listed
therein and The Chase Manhattan Bank (National Association), as Agent (filed as
Exhibit 10.45 to the Company's Form 10-Q for the fiscal quarter ended September 30,
1994, and incorporated herein by reference).
</TABLE>

30
<PAGE> 32

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
10.1 Agreement between City of Atlanta and Fulton County Recreation Authority and
Milwaukee Braves, Inc., dated 1964, as amended by seven supplemental agreements and
assigned to Atlanta National League Baseball Club, Inc. (filed as Exhibit 10(b)(i)
to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended
December 31, 1980, and incorporated herein by reference).
10.2 License Agreement between City of Atlanta and Fulton County Recreation Authority and
Atlanta Hawks Basketball, Inc. dated January 26, 1971, as amended by several letter
agreements and as assigned to Atlanta Hawks, Ltd. (filed as Exhibit 10(b)(ii) to
Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal year ended
December 31, 1980, and incorporated herein by reference).
10.3 Limited Partnership Agreement of Atlanta Hawks, Ltd., as amended (filed as Exhibit
10(b)(iv) to Amendment No. 1 on Form 8 to the Company's Form 10-K for the fiscal
year ended December 31, 1980, and incorporated herein by reference).
10.4 Turner Broadcasting System, Inc. 1988 Stock Option Plan (filed as Exhibit 10.1 to
the Company's Form 10-Q for the fiscal quarter ended June 30, 1988, and incorporated
herein by reference).*
10.4.1 Amendment No. 1 to Turner Broadcasting System, Inc. 1988 Stock Option Plan (filed as
Exhibit 10.42 to the Second Quarter 1994 Form 10-Q, and incorporated herein by
reference).*
10.4.2 Amendment No. 2 to Turner Broadcasting System, Inc. 1988 Stock Option Plan (filed as
Exhibit 10.43 to the Second Quarter 1994 Form 10-Q, and incorporated herein by
reference).*
10.5 Agreement, dated as of November 30, 1989, between the Company and the National
Basketball Association (filed as Exhibit 10.7 to the Company's Form 10-K for the
fiscal year ended December 31, 1989, and incorporated herein by reference).
10.6 Indemnification Agreement, dated as of March 11, 1986, by and between MGM/UA
Entertainment Co. and United Artists Corporation ("UA"), as supplemented by
Supplemental Indemnification Agreement, dated as of August 25, 1986, by and between
Turner Entertainment Co. and UA (filed as Exhibit 10.9 to the Company's Form 10-K
for the fiscal year ended December 31, 1989, and incorporated herein by reference).
10.7 Concession Agreement between Atlanta Braves, Inc. and Automatic Retailers of
America, Inc., dated November 1, 1965; Agreement Amending Concession Agreement dated
August 15, 1966; Supplement to Concession Agreement, as amended, dated January 10,
1969; two letter agreements with ARA Services, Inc., Atlanta/LaSalle Corporation and
Atlanta National League Baseball Club, Inc. ("ANLBC") dated January 28, 1976; letter
agreement between ARA Services, Inc. and ANLBC dated November 23, 1977; and
Promissory Note from ANLBC to ARA Services, Inc. dated November 30, 1977 (filed as
Exhibit 4(b)(vi) to Amendment No. 1 on Form 8 to the Company's 10-K for the fiscal
year ended December 31, 1980, and incorporated herein by reference).
10.8 Agreement, dated April 8, 1985, between TBS and Pacific-10 Conference, and
Television Right Agreement, dated April 10, 1985, between TBS and the Big Ten
Conference (filed as Exhibit 10(n) to the Company's Form S-1, filed on April 18,
1985, Registration Number 2-97132, and incorporated herein by reference).
10.9 Amended and Restated Joint Venture Agreement for Omni Ventures between ICC Ventures,
Inc. and Turner Omni Venture, Inc., dated May 28, 1985 (filed as Exhibit 10(n)(i) to
the Company's Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration
Number 2-97132, and incorporated herein by reference).
</TABLE>

31
<PAGE> 33

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
10.10 Lease Agreement between the Company and Omni Ventures (now CNN Center Ventures),
dated May 28, 1985 (filed as Exhibit 10(n)(ii) to the Company's Amendment No. 2 to
Form S-1, filed on June 19, 1985, Registration Number 2-97132, and incorporated
herein by reference).
10.11.1 Sublease Agreement between the Company and DeFoor Properties Incorporated, dated May
28, 1985 (the "Sublease Agreement"), (filed as Exhibit 10(n)(iii) to the Company's
Amendment No. 2 to Form S-1, filed on June 19, 1985, Registration Number 2-97132,
and incorporated herein by reference).
10.11.2 First Amendment to the Sublease Agreement, dated as of November 15, 1985; Second
Amendment to the Sublease Agreement, dated as of July 31, 1986; Third Amendment to
the Sublease Agreement, dated as of December 31, 1986 (filed as Exhibit 10.16 to the
Company's Form 10-K for the fiscal year ended December 31, 1989, and incorporated
herein by reference).
10.11.3 Assignment and Assumption of Sublease Agreement, dated as of June 19, 1990, between
the Company and CNN Center Ventures (filed as Exhibit 10.16.2 to the Company's Form
10-K for the fiscal year ended December 31, 1990, and incorporated herein by
reference).
10.11.4 First Amendment to Memorandum of Sublease, dated as of June 22, 1990, between
Cousins Properties, Inc. and CNN Center Ventures (filed as Exhibit 10.16.3 to the
Company's Form 10-K for the fiscal year ended December 31, 1990, and incorporated
herein by reference).
10.12 Joint Venture Agreement, dated as of March 1986, between MGM/UA Entertainment Co.
and United Artists Corporation (filed as Exhibit 10.25 to the Company's Amendment
No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.13 Distribution Agreement, dated as of March 11, 1986, between United
Artists/Metro-Goldwyn-Mayer Distribution Co. and MGM/UA Entertainment Co. (filed as
Exhibit 10.26 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986,
Registration No. 33-686, and incorporated herein by reference).
10.14 Distribution Agreement, dated as of March 11, 1986, between United
Artists/Metro-Goldwyn-Mayer Distribution Co. and United Artists Corporation (filed
as Exhibit 10.27 to the Company's Amendment No. 2 to Form S-2, filed March 18, 1986,
Registration Number 33-686, and incorporated herein by reference).
10.15 Name and Logo Agreement, dated as of March 11, 1986, between MGM/UA Entertainment
Co. and United Artists Corporation (filed as Exhibit 10.28 to the Company's
Amendment No. 2 to Form S-2, filed March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.16 Distribution Agreement, dated as of March 11, 1986, between MGM/UA Entertainment Co.
and United Artists Corporation (filed as Exhibit 10.29 to the Company's Amendment
No. 2 to Form S-2, filed on March 18, 1986, Registration Number 33-686, and
incorporated herein by reference).
10.17 Distribution Agreement (New Pictures), dated August 25, 1986, between Turner
Entertainment Co. and United Artists Corporation (filed as Exhibit 10(b) to the
Company's Form 8-K dated August 25, 1986, and incorporated herein by reference).
10.18 Amended and Restated Distribution Agreement (Home Video), dated July 16, 1993,
between Turner Entertainment Co. and Metro-Goldwyn-Mayer Inc. (filed as Exhibit 10.5
to the Company's Form 10-Q for the fiscal quarter ended June 30, 1993, and
incorporated herein by reference).
</TABLE>

32
<PAGE> 34

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
10.19 Amended and Restated Subscription and Registration Rights Agreement, dated as of May
27, 1987, by and among the Company and the persons listed on the signature pages
thereof (filed as Exhibit 10.32 to the Company's Form 10-K for the fiscal year ended
December 31, 1987, and incorporated herein by reference).
10.20 Shareholders' Agreement, dated as of June 3, 1987 (the "Shareholders' Agreement"),
by and among the Company, R. E. Turner and the Original Investors (as defined)
(filed as Exhibit 10.33 to the Company's Form 10-K for the fiscal year ended
December 31, 1987, and incorporated herein by reference).
10.21 Investors' Agreement, dated as of June 3, 1987, by and among the Company and the
Investors (as defined) (filed as Exhibit 10.34 to the Company's Form 10-K for the
fiscal year ended December 31, 1987, and incorporated herein by reference).
10.22 First Amendment, dated as of April 15, 1988, to the Shareholders' Agreement (filed
as Exhibit 10.2 to the Company's Form 10-Q for the fiscal quarter ended June 30,
1988, and incorporated herein by reference).
10.23 The Turner Incentive Plan (filed as Exhibit 19 to the Company's Form 10-Q for the
fiscal quarter ended September 30, 1989, and incorporated herein by reference).*
10.24 Letter Agreement, dated as of January 3, 1994, between the Company and the National
Football League (filed as Exhibit 10.28 to the Company's Form 10-K for the fiscal
year ended December 31, 1993 (the "1993 Form 10-K"), and incorporated herein by
reference).
10.25 Agreement, dated as of September 22, 1993, by and between the National Basketball
Association, the Company and Turner Network Television (filed as Exhibit 10.29 to
the 1993 Form 10-K, and incorporated herein by reference).
10.26 Letter Agreement, dated as of November 3, 1989, between TBS SuperStation, Turner
Network Television and Columbia Pictures Television, Inc. (filed as Exhibit 10.35 to
the Company's Form 10-K for the fiscal year ended December 31, 1989, and
incorporated herein by reference).
10.27 Letter Agreement between Turner Broadcasting System, Inc. ("TBS"), MGM/UA
Communications Co. ("MGM/UA CC"), Pathe Communications Corporation and MGM-Pathe
Communications Co., dated September 25, 1990 (as amending and incorporating by
reference the Letter Agreement, dated July 15, 1990, between TBS and MGM/UA CC), as
amended by Letter Agreements, dated October 1, 1990, October 8, 1990, October 22,
1990, October 24, 1990, October 26, 1990 and October 30, 1990 (filed as Exhibit 10
in the Company's Form 10-Q for the fiscal quarter ended September 30, 1990, and
incorporated herein by reference).
10.28 Assignment and Assumption Agreement, dated as of December 4, 1991, by and between HB
Distribution Co., Turner Broadcasting System, Inc., Great American Television and
Radio Company, Inc. and Great American Broadcasting Company (filed as Exhibit 9 in
the Company's Form 8-K dated December 4, 1991, and incorporated herein by
reference).
10.29 Lease Agreement, dated as of December 1, 1991, between Wilmington Trust Company and
Turner Broadcasting System, Inc. (filed as Exhibit 10.46 to the 1991 Form 10-K, and
incorporated herein by reference).
10.30 Consent and Agreement, dated as of December 1, 1991, Hughes Communication Galaxy,
Inc., Hughes Communications Satellite Services, Inc., Final Frontier Partners,
Wilmington Trust Company, Ameritrust Company National Association, CIBC Leasing Inc.
and Barclays Bank, PLC (filed as Exhibit 10.47 to the 1991 Form 10-K, and
incorporated herein by reference).
10.31 Turner Broadcasting System, Inc. Supplemental Benefit Plan (filed as Exhibit 10.48
to the 1992 Form 10-K, and incorporated herein by reference).*
10.32 Turner Broadcasting System, Inc. Supplemental Executive Retirement Plan (filed as
Exhibit 10.49 to the 1992 Form 10-K, and incorporated herein by reference).*
</TABLE>

33
<PAGE> 35

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
-------- ------------------------------------------------------------------------------------
<S> <C>
10.33 Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan
(filed as Exhibit 10.38 to the Second Quarter 1994 10-Q, and incorporated herein by
reference).*
10.34 Employment Agreement, dated as of December 20, 1993, by and between the Company and
W. Thomas Johnson, as amended by agreement dated January 26, 1994 (filed as Exhibit
10.39 to the 1993 Form 10-K, and incorporated herein by reference).*
10.35 Employment Agreement, dated as of December 20, 1993, by and between the Company and
Terence F. McGuirk, as amended by agreement dated January 26, 1994 (filed as Exhibit
10.40 to the 1993 Form 10-K, and incorporated herein by reference).*
10.36 Employment Agreement, dated as of January 1, 1994, by and between the Company and
Scott M. Sassa, as amended by agreement dated January 26, 1994 (filed as Exhibit
10.41 to the 1993 Form 10-K, and incorporated herein by reference).*
10.37 Employment Agreement, dated as of January 28, 1994, by and between New Line Cinema
Corporation and Robert Shaye.*
10.38 Turner Broadcasting System, Inc. Long-Term Incentive Plan (filed as Exhibit 10.44 to
the Second Quarter 1994 Form 10-Q, and incorporated herein by reference).*
11 Computation of Earnings per Common and Common Equivalent Share.
13 Portions of the 1994 Annual Report to Shareholders expressly incorporated by
reference in Part I, Item 1 and Part II, Items 5-8 of this Report.
21 Subsidiaries of the Company.
23 Consent of Price Waterhouse.
27 Financial Data Schedule (for SEC use only).
</TABLE>

---------------

* Management contract or compensatory plan or arrangement.

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the fourth quarter of 1994.

34
<PAGE> 36

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

TURNER BROADCASTING SYSTEM, INC.
(Registrant)

By: /s/ R. E. TURNER
R. E. Turner
Chairman of the Board of
Directors and President
(Chief Executive Officer)

Dated: March , 1995

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ --------------------------------- ---------------

/s/ R. E. TURNER Chairman of the Board of March 20, 1995
------------------------------------------ Directors and President (Chief
R. E. Turner Executive Officer)

/s/ WAYNE H. PACE Vice President -- Finance (Chief March 20, 1995
------------------------------------------ Financial Officer)
Wayne H. Pace
/s/ WILLIAM S. GHEGAN Vice President and Controller March 20, 1995
------------------------------------------ (Chief Accounting Officer)
William S. Ghegan

/s/ HENRY L. AARON Director March 20, 1995
------------------------------------------
Henry L. Aaron

/s/ THOMAS JOHNSON Director March 20, 1995
------------------------------------------
Thomas Johnson

/s/ RUBYE M. LUCAS Director March 20, 1995
------------------------------------------
Rubye M. Lucas

/s/ TERENCE F. MCGUIRK Director March 20, 1995
------------------------------------------
Terence F. McGuirk

/s/ BRIAN L. ROBERTS Director March 20, 1995
------------------------------------------
Brian L. Roberts
</TABLE>

35
<PAGE> 37

<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
------------------------------------------ --------------------------------- ---------------

<C> <S> <C>
/s/ SCOTT M. SASSA Director March 20, 1995
------------------------------------------
Scott M. Sassa

/s/ ROBERT SHAYE Director March 20, 1995
------------------------------------------
Robert Shaye

/s/ PETER BARTON Director March 20, 1995
------------------------------------------
Peter Barton

/s/ JOSEPH J. COLLINS Director March 20, 1995
------------------------------------------
Joseph J. Collins

/s/ MICHAEL J. FUCHS Director March 20, 1995
------------------------------------------
Michael J. Fuchs

/s/ GERALD M. LEVIN Director March 20, 1995
------------------------------------------
Gerald M. Levin

/s/ JOHN C. MALONE Director March 20, 1995
------------------------------------------
John C. Malone

/s/ TIMOTHY P. NEHER Director March 20, 1995
------------------------------------------
Timothy P. Neher

Director
------------------------------------------
Fred A. Vierra
</TABLE>

36
<PAGE> 38

REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE

To the Board of Directors of
Turner Broadcasting System, Inc.

Our audits of the consolidated financial statements referred to in our
report dated February 15, 1995 appearing in the 1994 Annual Report to
Shareholders of Turner Broadcasting System, Inc. (which report and consolidated
financial statements are incorporated by reference in this Annual Report on Form
10-K) also included an audit of the Financial Statement Schedule listed in Item
14(a)(2) of this Form 10-K. In our opinion, this Financial Statement Schedule
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.

PRICE WATERHOUSE LLP

Atlanta, Georgia
February 15, 1995

37
<PAGE> 39

SCHEDULE VIII

TURNER BROADCASTING SYSTEM, INC.

VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

(IN THOUSANDS)

<TABLE>
<CAPTION>
RECOVERIES BALANCE
BALANCE AT CHARGED TO ON ACCOUNTS AT END
ALLOWANCE FOR DOUBTFUL BEGINNING COSTS AND PREVIOUSLY OF
ACCOUNTS RECEIVABLE OF PERIOD EXPENSES WRITTEN OFF WRITE-OFFS OTHER PERIOD
----------------------------------- ---------- ---------- ----------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1992................ $ 31,795 $ 13,917 $ 22 $ (14,928) $(1,712) $29,094
======== ======== ========= ========= ======= =======
Year ended
December 31, 1993................ $ 29,094 $ 16,978 $ 4,052 $ (16,601) $ 1,475 $34,998
======== ======== ========= ========= ======= =======
Year ended
December 31, 1994................ $ 34,998 $ 19,125 $ 250 $ (18,010) $ 6,160 $42,523
======== ======== ========= ========= ======= =======
</TABLE>

<TABLE>
<CAPTION>
BALANCE
BALANCE AT CHARGED TO AT END
VALUATION ALLOWANCE ON BEGINNING COSTS AND OF
DEFERRED TAX ASSETS OF PERIOD EXPENSES ADJUSTMENTS OTHER PERIOD
----------------------------------- ---------- ---------- ----------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Year ended
December 31, 1993................ $ 0 $ 8,723 $ 0 $ 0 $ 8,723
======== ======== ========= ======= =======
Year ended
December 31, 1994................ $ 8,723 $ 0 $ 3,500 $ 0 $ 5,223
======== ======== ========= ======= =======
</TABLE>

38
<PAGE> 40
Selected Operating Data
Turner Broadcasting System, Inc.

<TABLE>
<CAPTION>
Year ended December 31,

1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
ADVERTISING REVENUE IN THOUSANDS(1)
TBS SuperStation $356,021 $339,803 $313,068 $287,483 $276,284
Turner Network Television 233,860 210,084 184,159 137,993 134,317
Cartoon Network 14,073 5,651 971 -- --
CNN 206,475 191,572 179,023 171,844 151,067
Headline News 82,406 77,165 69,087 64,822 58,150
CNN International 43,905 34,136 25,983 13,222 3,866
International Entertainment Networks(2) 5,261 1,037 52 -- --
-------- -------- -------- -------- --------
SUBSCRIPTION REVENUE IN THOUSANDS(1)
Turner Network Television $308,344 $296,319 $260,048 $231,933 $204,993
Cartoon Network 16,778 6,307 5 -- --
Turner Classic Movies 3,611 -- -- -- --
CNN 209,701 189,635 166,256 148,590 136,881
Headline News 17,945 9,530 7,201 5,623 4,637
International Entertainment Networks(2) 26,759 16,178 9,524 2,348 --
-------- -------- -------- -------- --------
U.S. COVERAGE HOUSEHOLDS IN THOUSANDS(3)(4)
TBS SuperStation 62,089 61,525 60,032 57,457 55,515
Turner Network Television 60,824 60,876 58,312 55,641 51,152
Cartoon Network 12,060 8,861 -- -- --
Turner Classic Movies(5) 3,200 -- -- -- --
CNN 62,738 62,420 61,172 58,877 56,702
Headline News 54,191 54,219 51,354 48,223 44,708
-------- -------- -------- -------- --------
INTERNATIONAL COVERAGE HOUSEHOLDS IN THOUSANDS(5)
CNN International(6) 57,392 45,100 34,700 15,500 7,600
TNT Latin America 3,200 1,462 929 142 --
Cartoon Network Latin America 3,531 997 -- -- --
TNT & Cartoon Network Europe 21,956 16,660 -- -- --
-------- -------- -------- -------- --------
AVERAGE U.S. RATING/AVERAGE U.S.
VIEWING HOUSEHOLDS IN THOUSANDS(4)(7)
TBS SuperStation 1.2/770 1.3/815 1.4/803 1.4/793 1.5/840
Turner Network Television 0.9/568 0.9/552 1.0/560 0.9/509 0.9/439
Cartoon Network 0.8/90 0.9/56 -- -- --
CNN 0.6/361 0.6/369 0.7/400 1.2/685(8) 0.7/391
Headline News 0.3/166 0.3/181 0.3/172 0.4/182(8) 0.4/153
-------- -------- -------- -------- --------
GROSS DOMESTIC BOX OFFICE RECEIPTS IN THOUSANDS(5)(9) $379,717 $ 10,000
NUMBER OF RELEASES
New Line Cinema 22 -- -- -- --
Castle Rock Entertainment 4 -- -- -- --
Turner Pictures Worldwide -- 1 -- -- --
-------- -------- -------- -------- --------
</TABLE>

(1) Certain amounts have been reclassified to conform to the current year
presentation.
(2) Consists of TNT Latin America, Cartoon Latin America, TNT & Cartoon Network
Europe and TNT & Cartoon Network Asia.
(3) Measured as of the December rating period in each indicated year.
(4) Information derived by the Company from A.C. Nielsen data.
(5) Information based on Company estimates.
(6) An additional 27 million, 29 million and 28 million homes received CNN
International at least five hours per day in 1994, 1993 and 1992,
respectively.
(7) Average U.S. viewing households represents the average number of viewing
households for the respective service at any time based upon an average for
each 24-hour period in the 12 rating periods in each indicated year.
(8) Increase primarily due to the Persian Gulf War coverage.
(9) Gross domestic box office receipts includes box office revenues received
during 1994 attributable to 1994 releases.

28
<PAGE> 41
Selected Financial Data
Turner Broadcasting System, Inc.

The following table summarizes certain consolidated financial data of Turner
Broadcasting System, Inc. (the "Company" or "TBS") for the years indicated
which, with respect to the latest three years, is qualified in its entirety by
the accompanying Consolidated Financial Statements and Notes to Consolidated
Financial Statements. Also see Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations in the accompanying 1994 Turner
Broadcasting System, Inc. Form 10-K.

<TABLE>
<CAPTION>
Year ended December 31,
in thousands, except per share data and current ratio 1994 1993 1992 1991 1990
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue $ 2,809,125 $ 1,921,606 $1,769,892 $ 1,480,243 $ 1,393,521
Operating profit(1) 287,642 302,140 289,382 297,121 201,265
Interest expense, net of interest income 208,318 181,571 189,637 196,139 189,741
Income (loss) before extraordinary items
and the cumulative effect of a change
in accounting for income taxes 46,153 72,445 34,061 42,936 (15,578)
Extraordinary items(2) (24,996) (10,693) 43,561 43,000 20,200
Cumulative effect of change in accounting
for income taxes(3) -- (306,000) -- -- --
Net income (loss) 21,157 (244,248) 77,622 85,936 4,622
Earnings (loss) per common share(4)
Income (loss) before extraordinary items
and the cumulative effect of a change
in accounting for income taxes 0.16 0.27 0.13 0.06 (0.42)
Net income (loss) 0.08 (0.92) 0.30 0.24 (0.28)

Balance Sheet Data (at end of year)
Working capital $ 642,001 $ 660,585 $ 475,397 $ 378,680 $ 264,796
Current ratio 1.99 2.60 2.26 2.09 1.76
Total assets 4,072,545 3,244,862 2,523,573 2,397,227 2,152,617
Long-term debt, less current portion(5) 2,517,748 2,294,557 1,709,051 1,968,937 1,855,619
Redeemable preferred stock(6) -- -- -- 4,855 334,160
Cash dividends(7) 19,604 18,407 13,589 5,356 --
Stockholders' equity (deficit) 343,731 (1,103) 233,101 (37,603) (473,092)
Total capitalization(8) 2,861,479 2,293,454 1,942,152 1,936,189 1,716,687
</TABLE>

(1) Operating profit is defined as income before interest expense, interest
income, income taxes, extraordinary items and the cumulative effect of a
change in accounting for income taxes.
(2) The amounts in 1994 and 1993 represent, respectively, a $40,977,000 and a
$16,946,000 loss on early extinguishment of indebtedness, net of the income
tax benefits of $15,981,000 and $6,253,000, respectively. The amounts in
1992, 1991 and 1990 represent utilization of operating loss carryforwards.
(3) The cumulative effect of adopting Statement of Financial Accounting
Standards No. 109 ("FAS 109") was a non-recurring charge to the 1993
Consolidated Statement of Operations of $306,000,000. This charge was
primarily related to the 1986 acquisition of the Turner Entertainment Co.
Film Library (the "TEC Film Library") and, to a lesser degree, the
Company's 50% interest in Hanna-Barbera Holding Company. In both
transactions there were substantial differences between amounts recorded
for financial reporting purposes and for income tax purposes.
(4) The earnings (loss) per share calculations for 1994 through 1991 include
common stock equivalents.
(5) See Note 5 of Notes to Consolidated Financial Statements for information
regarding repayment terms of and collateral for outstanding long-term debt.
(6) The amounts represent the accreted value of the Class B Cumulative
Preferred Stock outstanding at each year end. See Note 9 of Notes to
Consolidated Financial Statements.
(7) Amounts in 1992 and 1991 include dividends on Class B Cumulative Preferred
Stock. See Note 9 of Notes to Consolidated Financial Statements for
additional information.
(8) Total capitalization is defined as stockholders' equity (deficit),
long-term debt less current portion and Class B Cumulative Preferred Stock.

30
<PAGE> 42
Consolidated Statements of Operations
Turner Broadcasting System, Inc.

<TABLE>
<CAPTION>
Year ended December 31,
in thousands, except per share data 1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Revenue
Unaffiliated $ 2,324,218 $ 1,536,112 $ 1,398,667
Affiliated 484,907 385,494 371,225
----------- ----------- -----------
2,809,125 1,921,606 1,769,892
----------- ----------- -----------
Cost of operations 1,768,104 1,023,045 984,630
Selling, general and administrative 706,379 537,108 442,270
Equity in loss of unconsolidated entities 10,001 20,040 4,024
Gain on sale of equity investment (21,746) -- --
Loss on termination of the Checkout Channel -- -- 16,000
Depreciation of property and equipment and amortization
of intangible assets 58,745 39,273 33,586
Interest expense, net of interest income 208,318 181,571 189,637
----------- ----------- -----------
2,729,801 1,801,037 1,670,147
----------- ----------- -----------
INCOME BEFORE PROVISION FOR INCOME TAXES, EXTRAORDINARY ITEMS
AND THE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 79,324 120,569 99,745
Provision for income taxes 33,171 48,124 65,684
----------- ----------- -----------
INCOME BEFORE EXTRAORDINARY ITEMS AND THE CUMULATIVE EFFECT
OF A CHANGE IN ACCOUNTING FOR INCOME TAXES 46,153 72,445 34,061
Extraordinary items (24,996) (10,693) 43,561
----------- ----------- -----------
INCOME BEFORE THE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING FOR INCOME TAXES 21,157 61,752 77,622
Cumulative effect of a change in accounting for income taxes -- (306,000) --
----------- ----------- -----------
NET INCOME (LOSS) $ 21,157 $ (244,248) $ 77,622
----------- ----------- -----------
Net income (loss) applicable to common stock
Net income (loss) $ 21,157 $ (244,248) $ 77,622
Less: Preferred stock dividends and accretion of discount -- -- 1,292
----------- ----------- -----------
Net income (loss) applicable to common stock $ 21,157 $ (244,248) $ 76,330
----------- ----------- -----------
Earnings (loss) per common share and common stock equivalent
Income before extraordinary items and the cumulative effect
of a change in accounting for income taxes $ 0.16 $ 0.27 $ 0.13
Extraordinary items (0.08) (0.03) 0.17
Cumulative effect of a change in accounting for income taxes -- (1.16) --
----------- ----------- -----------
Net income (loss) $ 0.08 $ (0.92) $ 0.30
----------- ----------- -----------
Weighted average number of common shares outstanding, including
conversion of common stock equivalents 281,310 264,443 255,473
----------- ----------- -----------
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

31
<PAGE> 43
Consolidated Balance Sheets
Turner Broadcasting System, Inc.

December 31,
in thousands, except share data 1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 52,895 $ 162,858
Accounts receivable, less allowance of $31,862 and $23,083
Unaffiliated 567,404 378,228
Affiliated 103,432 94,011
Film costs 446,355 314,637
Installment contracts
receivable, less allowance of $10,661 and $11,915 46,806 56,563
Prepaid expense and other current assets 71,510 68,196
----------- -----------
Total current assets 1,288,402 1,074,493
Film costs, less current portion 1,893,069 1,633,731
Property and equipment, less accumulated depreciation 308,960 225,228
Installment contracts receivable,
less discount of $347 and $1,123 1,971 15,077
Goodwill and other intangible assets 409,468 111,202
Other assets 170,675 185,131
----------- -----------
TOTAL ASSETS $ 4,072,545 $ 3,244,862
=========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Accounts payable $ 49,036 $ 30,316
Accrued expenses 249,813 138,659
Deferred income 108,122 106,496
Income taxes payable 61,376 28,808
Participants' share and royalties payable 58,417 33,922
Interest payable 37,338 32,128
Film contracts payable 40,252 28,096
Current portion of long-term debt 1,345 2,051
Other current liabilities 40,702 13,432
----------- -----------
Total current liabilities 646,401 413,908
Long-term debt, less current portion 2,517,748 2,294,557
Deferred income taxes 385,731 395,668
Other long-term liabilities 178,934 141,832
----------- -----------
TOTAL LIABILITIES 3,728,814 3,245,965
=========== ===========
Commitments and contingencies
Stockholders' equity (deficit)
Class C Convertible Preferred Stock, par value $0.125;
authorized 12,600,000 shares; issued and outstanding
12,396,976 shares 260,438 260,438
Class A Serial Preferred Stock, par value $0.10; authorized
500,000 shares -- --
Class D Serial Preferred Stock, par value $0.0625;
authorized 100,000,000 shares -- --
Class A Common Stock, par value $0.0625; authorized 75,000,000
shares; issued and outstanding 68,330,388 shares 4,271 4,271
Class B Common Stock, par value $0.0625; authorized 300,000,000
shares; issued and outstanding 137,424,549 and 120,887,672 shares 8,589 7,555
Capital in excess of par value 1,073,317 731,042
Accumulated deficit (1,002,884) (1,004,409)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) 343,731 (1,103)
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 4,072,545 $ 3,244,862
=========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

32
<PAGE> 44
Consolidated Statements of Changes in
Stockholders' Equity (Deficit)
Turner Broadcasting System, Inc.

<TABLE>
<CAPTION>
December 31,
1994 1993 1992
in thousands, except share data Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
CLASS C CONVERTIBLE PREFERRED STOCK,
PAR VALUE $0.125
Balance at beginning and end of year 12,396,976 $ 260,438 12,396,976 $ 260,438 12,396,976 $ 260,438
=========== ----------- =========== ----------- =========== ---------
CLASS A COMMON STOCK, PAR VALUE $0.0625
Balance at beginning and end of year 68,330,388 4,271 68,330,388 4,271 68,330,388 4,271
=========== ----------- =========== ----------- =========== ---------
CLASS B COMMON STOCK, PAR VALUE $0.0625
Balance at beginning of year 120,887,672 7,555 119,845,121 7,490 107,865,957 6,742
Issuance of Class B Common Stock 23,903 1 287,930 18 11,500,000 719
Exercise of stock options 191,908 13 754,621 47 479,164 30
Issuance of stock related to Merger 16,321,066 1,020 -- -- -- --
Other -- -- -- -- -- (1)
----------- ----------- ----------- ----------- ----------- ---------
Balance at end of year 137,424,549 8,589 120,887,672 7,555 119,845,121 7,490
=========== ----------- =========== ----------- =========== ---------
CAPITAL IN EXCESS OF PAR VALUE
Balance at beginning of year 731,042 702,791 496,568
Issuance of Class B Common Stock 599 7,449 203,925
Exercise of stock options 2,788 7,443 2,298
Tax benefit from exercise of stock options 459 13,359 --
Issuance of stock related to Merger 338,370 -- --
Other 59 -- --
----------- ----------- ---------
Balance at end of year 1,073,317 731,042 702,791
----------- ----------- ---------
ACCUMULATED DEFICIT
Balance at beginning of year (1,004,409) (741,889) (805,622)
Net income (loss) 21,157 (244,248) 77,622
Cash dividends (19,604) (18,407) (12,597)
Accretion of discount and dividends on
Class B Cumulative Preferred Stock -- -- (1,292)
Other (28) 135 --
----------- ----------- ---------
Balance at end of year (1,002,884) (1,004,409) (741,889)
----------- ----------- ---------
TOTAL STOCKHOLDERS' EQUITY (DEFICIT) $ 343,731 $ (1,103) $ 233,101
=========== =========== =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

33
<PAGE> 45
Consolidated Statements Of Cash Flows
Turner Broadcasting System, Inc.

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH PROVIDED BY (USED FOR) OPERATIONS
Net income (loss) $ 21,157 $ (244,248) $ 77,622
Adjustments to net income (loss)
Equity in loss of unconsolidated entities 10,001 20,040 4,024
Gain on sale of equity investment (21,746) -- --
Depreciation of property and equipment and
amortization of intangible assets 58,745 39,273 33,586
Pretax loss on early extinguishment of debt 40,977 16,946 --
Cumulative effect of a change in
accounting for income taxes -- 306,000 --
Change in assets and liabilities, net of acquisitions
Net increase in accounts receivable (126,892) (30,914) (49,916)
Net (increase) decrease in installment contracts receivable 22,863 15,246 (968)
Change in film cost and liabilities, net
Purchased program rights 78,285 74,398 70,846
Produced programming (182,764) (38,375) (13,200)
Licensed program rights 1,514 7,223 (49,755)
Net increase (decrease) in interest payable 4,967 12,321 (1,941)
Net increase in income taxes payable 32,568 12,259 9,746
Net increase in accounts payable and accrued expenses 52,178 2,376 22,288
Net increase (decrease) in deferred tax liability (46,049) 13,377 --
Other, net (28,001) (69,922) 44,439
----------- ----------- -----------
Net cash provided by (used for) operations (82,197) 136,000 146,771
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES
Acquisitions (156,654) (592,275) --
Additions to property and equipment (109,236) (50,570) (47,231)
Net proceeds from sale of assets 107,978 -- 45,000
----------- ----------- -----------
Net cash used for investing activities (157,912) (642,845) (2,231)
----------- ----------- -----------
CASH PROVIDED BY (USED FOR) FINANCING ACTIVITIES
Borrowings 1,299,600 1,522,372 300,052
Payments of debt (1,127,371) (968,008) (543,942)
Commercial paper activity, net -- -- (40,850)
Premium paid on early extinguishment of debt (24,300) -- --
Payments of cash dividends (19,604) (18,407) (13,589)
Proceeds from exercise of stock options 1,821 7,490 2,328
Proceeds from issuance of common stock -- -- 204,644
Redemption of preferred stock -- -- (5,483)
----------- ----------- -----------
Net cash provided by (used for) financing activities 130,146 543,447 (96,840)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents (109,963) 36,602 47,700
Cash and cash equivalents at beginning of period 162,858 126,256 78,556
----------- ----------- -----------
Cash and cash equivalents at end of period $ 52,895 $ 162,858 $ 126,256
=========== =========== ===========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

34
<PAGE> 46
Notes To Consolidated Financial Statements
Turner Broadcasting System, Inc.

NOTE 1 SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Turner
Broadcasting System, Inc. and its subsidiaries (the "Company"). The Company's
investments in unconsolidated entities where the ability to exercise
significant influence is present are accounted for by the equity method.
All significant intercompany accounts and transactions are eliminated in
consolidation. Certain amounts in the consolidated financial statements prior
to 1994 have been reclassified to conform to the current year presentation.

CASH EQUIVALENTS
All highly liquid investments, consisting primarily of treasury bills and
commercial paper with an original maturity of 90 days or less, are reported as
cash equivalents. Cash equivalents are reported at their cost basis, which
approximates market value, and totaled $33,199,000 and $131,006,000 at December
31, 1994 and 1993, respectively.

FILM COSTS
Film costs include purchased program rights, produced programming and licensed
program rights. Film costs are stated at the lower of cost less accumulated
amortization or estimated net realizable value. Amortization of film costs and
participants' share and royalties expense are recorded in cost of operations in
the Consolidated Statements of Operations.
Purchased program rights, representing purchased costs allocated to films
that have been exhibited at least once in both primary (defined as the first
markets in which such films are to be exploited) and secondary (defined as all
other) markets, are amortized to expense using the greater of the ratio that
the current period's gross revenues bear to the total estimated gross revenues
to be derived from all sources (the "individual film forecast computation
method") or straight-line over 20 years. See Note 2 of Notes to Consolidated
Financial Statements. Royalties and obligations to profit participants in the
films are accrued using a method which approximates the individual film
forecast computation method. Purchased program rights expected to be amortized
within one year are classified as current assets.
Produced programming includes motion picture, episodic television, animated
programming, rights fees and other costs relating to sports events, and
long-form original television programming. The related produced programming
costs consist of direct production costs, profit participations and residuals,
production overhead, capitalized interest, and print and exploitation costs
(such as advertising), net of accumulated amortization. Distribution fees are
charged to expense when the corresponding revenues are recognized.
Motion picture, episodic television and animated programming costs are
amortized using the individual film forecast computation method. Such estimates
are revised periodically and estimated losses, if any, are provided for in full
at the time determined. Motion picture, episodic television and animated
produced programming costs classified as current assets include, net of
amortization, the cost of completed theatrical films, television programs or
animated produced programming that have been allocated to domestic and
international primary markets. All other motion picture, episodic television
and animated produced programming film costs are classified as noncurrent.
Rights fees and other costs relating to sports events are generally expensed
when the events are telecast. Other produced programming costs, which primarily
relate to long-form television programming, are generally charged to cost of
operations when each production is aired or syndicated. Rights fees and other
costs relating to sports events and other produced programming costs expected
to be expensed within one year are classified as current assets.
Licensed program rights represent amounts paid or payable to program
suppliers for the limited right to broadcast the suppliers' programming and
distribution rights to entertainment product. New licensed film contracts are
recorded when available for use at cost less an amount representing imputed
interest; imputed interest is amortized to expense over the payment periods of
the related obligations using the interest method (rates ranging from 8.50% to
10.75%). Exhibition rights under the licenses are generally limited to a
contract period or a specific number of showings. Accord-

35
<PAGE> 47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

ingly, licensed program rights are amortized to expense monthly at the greater
of the straight-line rate or a rate based on actual usage. Rights expected to
be amortized within one year are classified as current assets. Distribution
rights are generally amortized over the term of the agreement. Prepaid licensed
program rights represent licensed program rights for which payments have been
made prior to their availability. As these programs become available for use
they are reclassified to licensed program rights.

PROPERTY AND EQUIPMENT
Property and equipment is stated at cost less accumulated depreciation.
Expenditures for improvements that add to the productive capacity or extend the
useful life of an asset are capitalized. Expenditures for maintenance and
repairs are expensed when incurred. When depreciable properties are retired or
otherwise disposed of, the cost and related accumulated depreciation are
eliminated from the accounts and the resultant gain or loss is included in the
Consolidated Statements of Operations. Depreciation is provided over the
estimated useful lives of the individual assets using the straight-line method
for financial reporting purposes.

GOODWILL AND OTHER INTANGIBLE ASSETS
Goodwill resulting from business acquisitions consists of the excess of the
acquisition cost over the fair value of the net assets of the businesses
acquired. Goodwill in the amount of $299,413,000, net of $10,932,000 in
accumulated amortization, is amortized on a straight-line basis over lives
ranging from 20 to 40 years. Other intangible assets in the amount of
$110,055,000, net of $8,111,000 in accumulated amortization, are amortized on a
straight-line basis over their estimated useful lives. At each balance sheet
date, the Company evaluates the realizability of goodwill and other intangilble
assets. Based upon the most recent analyses, primarily reviews of anticipated
operating results of the associated entities, the Company believes goodwill and
other intangible assets are properly valued at December 31, 1994. Total
amortization expense related to goodwill was $10,134,000 in 1994.

REVENUE RECOGNITION
Advertising revenues are recognized in the period during which the spots are
aired. Subscription revenues are recognized in the period to which they pertain
or when the programming event to which they relate is aired. Syndication
revenues are recognized in the period in which the agreement is executed,
provided certain conditions of sale have been met, including availability of
the product for broadcast or sale. Motion picture theatrical revenues are
recognized as films are exhibited. Home video revenues are recognized upon
shipment of the product. Certain licensing distribution contracts provide for
receipt of nonrefundable minimum guarantees which are recognized when the
rights are available for use or the film is available for exhibition, providing
other conditions of sale have been met. Revenues in excess of the nonrefundable
guarantees are not recognized until earned.

INTEREST
Interest expense is shown net of interest income of $10,856,000, $13,864,000
and $11,466,000 for the years ended December 31, 1994, 1993 and 1992,
respectively, and interest capitalized of $14,356,000 in 1994.
Costs associated with the refinancing and issuance of debt as well as debt
discounts, if any, are expensed as interest using the interest method over the
appropriate term of the related debt agreement.
The Company has only limited involvement with interest rate swap agreements
with commercial banks to mitigate the effect of possible rising interest rates.
These agreements are designated as hedges of interest rates, and the
differential to be paid or received on interest rate swaps is accrued as an
adjustment to interest expense as interest rates change. The Company has not
entered into any interest rate swap agreements or other financial instruments
for trading purposes.

INCOME TAXES
The Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"), effective January 1, 1993.
Differences in recording certain income and expenses for financial reporting
and income tax purposes relate principally to amortization of film costs,
recognition of revenue on syndication contracts and depreciation of fixed
assets. Investment tax credits are accounted for on the "flow-through" method.
See Note 7 of Notes to Consolidated Financial Statements.

36
<PAGE> 48

NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share and common share equivalent is computed by
dividing net income (loss) applicable to common stock by the weighted average
number of outstanding shares of common stock and common stock equivalents, when
dilutive, during 1994, 1993 and 1992. Common stock equivalents are principally
the incremental shares associated with the Class C Convertible Preferred Stock
(the "Class C Preferred Stock") and outstanding stock options. Fully diluted
income (loss) per share amounts are similarly computed, but include the effect,
when dilutive, of the Company's other potentially dilutive securities. The
Company's zero coupon subordinated convertible notes due 2004 and 2007 are
excluded from the 1994, 1993 and 1992 calculations of net income (loss) per
common share (when applicable) due to their anti-dilutive effect. The
difference between the primary and fully diluted earnings per share is not
significant. See Note 5 and Note 9 of Notes to Consolidated Financial
Statements.

NOTE 2 ACQUISITIONS
On December 29, 1993, the Company acquired the remaining 50% interest in a
joint venture (the "Joint Venture") which principally owned the Hanna-Barbera
Film Library. The Company originally acquired a 50% interest in the Joint
Venture in December 1991. The other investors were Apollo Investment Fund, L.P.
("Apollo") and its affiliate, Altus Finance, S.A. ("Altus"). In the December
1993 transaction, the Company purchased the common stock held by Apollo for
approximately $68,000,000 in cash, repaid a senior note of the Joint Venture
from Altus for $33,000,000 and repaid or assumed all indebtedness and
liabilities of the Joint Venture. The acquisition of the Joint Venture was
accounted for by the purchase method of accounting.
On December 22, 1993, the Company acquired from Main Street Partners, Sony
Pictures Entertainment, Inc. and Group W Investments, Inc. the equity interests
in Castle Rock Entertainment ("Castle Rock"), a motion picture production
company, for approximately $100,000,000 in cash and approximately $293,000,000
for the repayment of certain outstanding indebtedness, other liabilities
assumed and other acquisition costs. The acquisition of Castle Rock was also
accounted for by the purchase method of accounting. Goodwill in the amount of
approximately $100,000,000 was recognized as the excess of total purchase price
over net assets acquired in the transaction, and is being amortized on a
straight-line basis over 20 years.
The Company and New Line Cinema Corporation ("New Line") completed a merger
of New Line with a wholly-owned subsidiary of the Company on January 28, 1994
(the "Merger"). As a result of the Merger, each share of New Line Common Stock
has been converted into the right to receive 0.96386 of a share of the
Company's Class B Common Stock. The valuations used by New Line and the Company
for purposes of arriving at the exchange ratio were $20 per share of New Line
Common Stock and $20.75 per share of the Company's Class B Common Stock. The
maximum number of Class B common shares issuable pursuant to the Merger is
approximately 21,300,000 valued at approximately $442,000,000. Cash will be
distributed in lieu of any fractional shares. At December 31, 1994,
approximately 16,300,000 shares of the Company's Class B Common Stock had been
issued in connection with the Merger. The remaining shares are issuable upon
the exercise of New Line stock options and warrants and the conversion of the
New Line convertible subordinated debentures discussed below. Included in Other
current liabilities at December 31, 1994 was $38,177,000 related to such
remaining shares. Additionally, the Company assumed and incurred liabilities of
approximately $120,600,000 and paid debt and certain other acquisition costs of
approximately $140,000,000 in connection with the Merger. Among the liabilities
assumed in the Merger were $29,125,000 of New Line 6 1/2% Convertible
Subordinated Debentures (the "Convertible Debentures"). See Note 5 of Notes to
Consolidated Financial Statements. The Convertible Debentures are convertible
at the option of each holder into an aggregate of approximately 1,700,000
shares of Class B Common Stock.
The Merger was accounted for by the purchase method of accounting. Goodwill
and other intangible assets in the amount of approximately $300,000,000 was
recognized in the transaction, and is being amortized on a straight-line basis
over periods not exceeding 40 years.

37
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

At the time of the Merger, New Line owned approximately 3,000,000 shares, or
37.4%, of the outstanding capital stock of RHI Entertainment, Inc. ("RHI"). In
April 1994, New Line entered into an agreement to tender for cash its equity
interest in RHI to an unaffiliated entity for $36 per share. In June 1994, the
Company received approximately $108,000,000 in cash in connection with the
transaction and recognized a pre-tax gain of approximately $22,000,000.
The following unaudited pro forma financial information is not intended to
reflect results of operations which would have actually resulted had the
transactions described above been effective on the dates indicated. Moreover,
this information is not intended to be indicative of results of operations
which may be obtained in the future.
The unaudited pro forma condensed statements of operations for the years
ended December 31, 1993 and 1992 present the pro forma results of the
continuing operations of the Company, the acquisitions of the Joint Venture and
Castle Rock and the Merger for those periods assuming the acquisitions and the
Merger occurred at the beginning of the periods presented. The pro forma effect
of the Merger for the year ended December 31, 1994 is not considered
significant.
The unaudited pro forma results of operations for the Company as adjusted
for the pro forma effects of the above are as follows:
<TABLE>
<CAPTION>
Unaudited
Year ended December 31,
in thousands, except per share data 1993 1992
-------------------------------------------------------------------------------
<S> <C> <C>
Revenue $2,444,457 $2,163,103
===============================================================================
Income (loss) before
extraordinary items and the
cumulative effect of a change
in accounting for income taxes $ 34,358 $ (9,378)
Net income (loss) $ (282,335) $ 26,829
===============================================================================
Income (loss) per share of
Class A and B Common Stock
Income (loss) before
extraordinary items and
the cumulative effect of a
change in accounting for
income taxes $ 0.12 $ (0.03)
Net income (loss) $ (0.99) $ 0.10
===============================================================================
</TABLE>

In March 1993, the Company acquired a 27.5% limited partnership interest in
n-tv, a 24-hour German language news channel, for $19,205,000 of which
$11,654,000 was determined to be goodwill. During the period from purchase
through December 31, 1993, and for the year ended December 31, 1994, the
Company also contributed $16,054,000 and $17,019,000, respectively, in
additional capital or advances convertible into capital, all of which was
determined to be goodwill. This goodwill is being amortized on a straight-line
basis over 20 years. The Company has committed to additional capital and
advances to the limited partnership of $13,500,000 in 1995, of which $7,300,000
was prepaid in December 1994.
The Company's ownership percentage in n-tv was 30.3% and 25.8% at December
31, 1994 and 1993, respectively. The Company is accounting for this investment
using the equity method and its share of the undistributed net losses of n-tv
for the years ended December 31, 1994 and 1993 were $12,502,000 and
$18,622,000, respectively. The summarized financial position and results of
operations of n-tv follow:
<TABLE>
<CAPTION>
December 31,
in thousands 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Current assets $ 16,917 $ 6,335
Noncurrent assets 18,070 20,115
Current liabilities 47,780 36,588
Partners' deficit (12,793) (10,138)
===============================================================================
Year ended
December 31,
in thousands 1994 1993
-------------------------------------------------------------------------------
Revenue $ 17,618 $ 8,222
Operating loss (40,239) (84,169)
Net loss (47,387) (85,815)
===============================================================================
</TABLE>

The Company's other unconsolidated subsidiaries and 50% or less owned
entities are insignificant.

38
<PAGE> 50

NOTE 3 FILM COSTS

The following table sets forth the components of unamortized film costs:

<TABLE>
<CAPTION>
December 31,
in thousands 1994 1993
-------------------------------------------------------------------------------
<S> <C> <C>
Purchased program rights $1,102,563 $1,172,921
Produced programming
Released 302,559 166,768
Completed and not released 40,021 17,654
In process 405,255 153,630
Episodic television 107,543 89,077
Licensed program rights 257,796 231,385
Prepaid licensed program rights 123,687 116,933
-------------------------------------------------------------------------------
2,339,424 1,948,368
Less current portion 446,355 314,637
-------------------------------------------------------------------------------
$1,893,069 $1,633,731
===============================================================================
</TABLE>

On the basis of the Company's anticipated total gross revenue estimates,
over 87% of produced programming classified as released and episodic television
costs at December 31, 1994, will be amortized within the three-year period
ending December 31, 1997. See Note 1 of Notes to Consolidated Financial
Statements.

Film costs included in Cost of Operations is composed of the following:

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Purchased program rights $ 89,312 $ 75,814 $ 79,554
Produced programming 879,527 360,511 333,087
Licensed program rights 82,086 71,503 65,960
Participants' share
and royalties 54,994 32,072 21,992
Non-cash amortization
of certain acquisition
purchase adjustments 4,859 -- --
--------------------------------------------------------------------------------
$1,110,778 $539,900 $500,593
================================================================================
</TABLE>

NOTE 4 PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows:

<TABLE>
<CAPTION>
December 31, Estimated
in thousands 1994 1993 useful lives
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings $155,995 $138,332 10-50 years
Equipment and furniture 285,199 210,985 3-15 years
Transponders 61,961 46,053 11-13 years
Land 21,019 21,019
Other 38,875 18,462 6-15 years
--------------------------------------------------------------------------------
563,049 434,851
Less accumulated
depreciation 254,089 209,623
--------------------------------------------------------------------------------
$308,960 $225,228
================================================================================
</TABLE>

Depreciation expense recorded in the Consolidated Statements of Operations
related to property and equipment was $39,595,000, $34,150,000 and $29,843,000
for the years ended December 31, 1994, 1993 and 1992, respectively.
Buildings include capital leases of $18,542,000 and $19,920,000 at December
31, 1994 and 1993, respectively, net of accumulated depreciation of $18,430,000
and $17,037,000, respectively. Depreciation expense related to capital leases
was $1,393,000, $1,346,000 and $1,595,000 for the years ended December 31,
1994, 1993 and 1992, respectively.
The Company has long-term noncancellable operating lease commitments for
vehicles, sports facilities, satellite transmission facilities and office
space. Total rental expense for these operating leases is summarized as
follows:

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Total rental expense $88,875 $78,137 $66,658
Contingent rental expense 13,370 9,218 17,057
--------------------------------------------------------------------------------
</TABLE>

Future minimum rental payments at December 31, 1994 for noncancellable
operating leases with remaining terms in excess of one year aggregate
$432,830,000 and are payable as follows: 1995 - $69,547,000; 1996 -
$66,469,000; 1997 - $61,995,000; 1998 - $53,044,000; 1999 - $47,966,000; 2000
and thereafter in the aggregate - $133,809,000.

39
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

NOTE 5 LONG-TERM DEBT

Long-term debt consists of:

<TABLE>
<CAPTION>
December 31,
in thousands 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Bank credit facilities $1,490,000 $1,225,000
12% Senior Subordinated Debentures due October 15,
2001, net of unamortized discount of $3,268 -- 536,732
8 3/8% Senior Notes due July 1, 2013, net of
unamortized discount of $2,619 and $2,675 297,381 297,325
7.4% Senior Notes due 2004, net of unamortized
discount of $363 249,637 --
8.4% Senior Debentures due 2024, net of
unamortized discount of $155 199,845 --
Zero coupon subordinated convertible notes, 7.25%
yield, due February 13, 2007, net of unamortized
discount of $336,487 and $353,368 245,569 228,688
Convertible subordinated debentures of a
wholly-owned subsidiary 29,075 --
Obligations under capital leases due in varying
amounts through 1999, net of imputed interest
of $931 and $1,075 6,200 6,353
Other debt, net of imputed interest of $1,175 and
$29, due in varying amounts through 2009, interest
at fixed rates ranging from 6.00% to 9.49% 1,386 2,510
--------------------------------------------------------------------------------
$2,519,093 $2,296,608
Less current portion 1,345 2,051
--------------------------------------------------------------------------------
$2,517,748 $2,294,557
================================================================================
</TABLE>

BANK CREDIT FACILITIES
On July 1, 1993, the Company entered into a credit agreement (the "1993 Credit
Agreement") with a group of banks pursuant to which such banks extended a
$750,000,000 unsecured revolving credit facility. On December 15, 1993, the
1993 Credit Agreement was amended, among other things, to increase the amount
available for borrowing to $1,500,000,000. Amounts available for borrowing or
reborrowing under this revolving facility will automatically decrease by
$75,000,000 as of the last business day of the calendar quarters ending March
31, 1998, June 30, 1998, September 30, 1998 and December 31, 1998, and by
$150,000,000 as of the last business day of each quarter thereafter until
December 31, 2000, at which time the revolving credit facility will terminate.
Under the 1993 Credit Agreement, amounts repaid under the revolving credit
facility may be reborrowed subject to borrowing availability. The amount of
borrowing availability is subject to other provisions of the 1993 Credit
Agreement, including requirements that (a) minimum ratios be maintained, as
from time to time are in effect, of funded debt to cash flow, cash flow to
interest expense and cash flow to fixed charges; and (b) there does not exist,
and that such borrowing would not create, a default or event of default, as
defined. These covenants are similar to, though generally less restrictive
than, the covenants in the credit agreement entered into by the Company in
1989, as amended (the "1989 Credit Agreement").
Simultaneous with the execution of the 1993 Credit Agreement in July 1993,
the Company canceled a $360,000,000 and a $200,000,000 unsecured revolving
credit facility governed by the 1989 Credit Agreement. On December 21, 1993,
the remaining facilities under the 1989 Credit Agreement, a $700,000,000 and a
$140,000,000 unsecured term loan, were repaid and canceled.
On September 7, 1994, the banks participating in the 1993 Credit Agreement
provided a new $500,000,000 unsecured revolving credit facility (the "1994
Credit Agreement"). The terms and covenants that govern the new facility are
identical to those provided in the 1993 Credit Agreement.
Amounts outstanding under the 1989, 1993 and 1994 Credit Agreements bear
interest at varying rates on the basis of different rate indices and the
Company's operating performance. Interest is payable at intervals specified in
the Credit Agreements. The interest rates of the credit agreements ranged from
4.13% to 9.00% and 4.07% to 6.00% during the years ended December 31, 1994 and
1993, respectively. The Company pays fees of 3/8 of 1% per annum on the average
unborrowed portion of the total amount available for borrowing.
Approximately $1,490,000,000 and $1,225,000,000 of the Company's
indebtedness bore interest on a floating

40
<PAGE> 52

basis tied to short-term market indices at December 31, 1994 and 1993,
respectively. At December 31, 1994 and 1993, the weighted average interest
rates associated with this indebtedness were 7.55% and 4.69%, respectively. The
Company has interest rate swap agreements having a total notional principal
amount of $480,000,000 and $780,000,000 at December 31, 1994 and 1993,
respectively, with commercial banks. The decrease in the notional principal
amount of $300,000,000 was effected by expiring agreements. No swap agreements
were terminated in 1994 or 1993. The total notional amount of the contracts
that will expire in the first quarter of 1995 is $480,000,000, after which time
the Company will have no interest rate swap agreements outstanding. Upon
expiration of the swap agreements, the Company will continue to assess the
risks associated with possible changes in interest rates and the need, if any,
to mitigate such risks. The weighted average receipt and payment rates
associated with the swap agreements were 6.46% and 9.02%, respectively, at
December 31, 1994 and were 4.16% and 9.07%, respectively, at December 31,
1993. The incremental interest expense related to the swap agreements was
$22,000,000, $34,000,000 and $33,000,000 in 1994, 1993 and 1992, respectively.
The Company has exposure to credit risk but does not anticipate nonperformance
by the counterparties to these agreements.
The 1993 and 1994 Credit Agreements contain restrictive covenants
(regarding, among other things, additional indebtedness, liens, guarantees,
dispositions, investments and dividend payments), and require the maintenance
of certain ratios, including funded debt to operating cash flow, operating cash
flow to fixed charges and operating cash flow to interest expense, as defined.
Furthermore, the 8 3/8% Senior Notes, the 7.4% Senior Notes, the 8.4% Senior
Debentures, and the zero coupon subordinated convertible notes due 2007 provide
each holder of such securities with the right, at the holder's option, to
require the Company to purchase all or any portion of the holder's securities
in the event of a change of control; provided that with respect to the 8 3/8%
Senior Notes, the 7.4% Senior Notes and the 8.4% Senior Debentures, in
addition to a change of control, such securities must also be downgraded to
below BB+ by Standard and Poor's Corporation or Ba2 by Moody's Investors
Service within 120 days of the change of control for the holder to have the
repurchase option. A change of control is deemed to occur when neither R. E.
Turner and his estate, heirs and legatees, those parties who beneficially owned
the Company's Class C Preferred Stock at the date of the issuance of such
securities nor any combination thereof have the power to vote at least a
majority of the voting power of the Company's voting securities.

CNN CENTER VENTURES
CREDIT AGREEMENT
On December 21, 1993, the Company canceled a $125,000,000 revolving credit
agreement governed by the CNN Center Ventures Credit Agreement that was
guaranteed by the Company and secured by a first mortgage lien on the CNN
Center and adjacent parking deck facility.

12% SENIOR
SUBORDINATED DEBENTURES
On September 16, 1994, the Company called for the redemption on October 17,
1994, all of its outstanding 12% Senior Subordinated Debentures due 2001 (the
"Subordinated Debentures"). The Company used its unsecured revolving credit
facility to redeem the Subordinated Debentures, of which $536,981,000, net of
unamortized discount of $3,019,000, was outstanding at redemption date. The
Subordinated Debentures were redeemed at the rate of $1,045 plus accrued
interest in cash for each $1,000 principal amount at maturity.

SHELF REGISTRATION
On May 6, 1993, the Company filed a registration statement with the Securities
and Exchange Commission (the "Shelf Registration") to allow the Company to
offer, from time to time, the sale of up to $1,100,000,000 of unsecured senior
debt or unsecured senior subordinated debt securities, consisting of notes,
debentures, or other evidence of indebtedness.

8 3/8% SENIOR NOTES
On July 8, 1993, the Company sold $300,000,000 of 8 3/8% Senior Notes due July
1, 2013 (the "Notes") under the Shelf Registration. The net proceeds to the
Company were approximately $291,445,000, after market and underwriting
discounts. The Notes bear interest at the rate of 8 3/8% per annum payable
semi-annually on January 1 and July 1 of each year, commencing January 1, 1994.
The Notes are not redeemable at the option of the Company. Each holder has the
right to require the Company to repurchase such holder's Notes in whole, but
not in part, upon the occurrence of certain triggering events, including,
without limitation, a change of control, certain restricted payments or certain
consolidations, mergers, conveyances or transfers of assets, each as defined in
the indenture relating to the Notes. The Company is not required to make
mandatory redemption or sinking

41
<PAGE> 53

fund payments with respect to the Notes prior to maturity. The covenants
governing the Notes limit the Company's ability to incur additional funded debt
by requiring the maintenance of a minimum consolidated interest coverage ratio,
as defined.

7.4% SENIOR NOTES
AND 8.4% SENIOR DEBENTURES
On February 3, 1994, the Company sold $250,000,000 of 7.4% Senior Notes due
2004 (the "Senior Notes") and $200,000,000 of 8.4% Senior Debentures due 2024
(the "Senior Debentures" and, together with the Senior Notes, the "Securities")
under the Shelf Registration. The net proceeds to the Company were
approximately $246,282,000 and $196,680,000, respectively, after market and
underwriting discounts. The Senior Notes and the Senior Debentures bear
interest at the rate of 7.4% and 8.4% per annum, respectively, payable
semi-annually on February 1 and August 1 of each year, commencing on August 1,
1994. The Senior Notes are not redeemable at the option of the Company. The
Senior Debentures are redeemable, at the Company's option, at any time after
February 1, 2004, at a redemption price of 104.161% of the principal amount,
plus accrued and unpaid interest to the date of redemption, which redemption
price reduces over 10 years to a redemption price of 100% of the principal
amount in 2014 and thereafter. Each holder has the right to require the Company
to repurchase such holder's Securities in whole, but not in part, at a
redemption price, payable in cash, equal to 101% of the principal amount, plus
accrued and unpaid interest to the date fixed for redemption, upon the
occurrence of certain triggering events, including, without limitation, a
change of control, certain restricted payments or certain consolidations,
mergers, conveyances or transfers of assets, each as defined in the indenture
related to the Securities. The Company is not required to make mandatory
redemption or sinking fund payments with respect to the Securities prior to
maturity.
The Company used substantially all of the net proceeds to repay amounts
outstanding under the 1993 Credit Agreement incurred in connection with the
acquisitions of Castle Rock and the remaining 50% interest in the Joint
Venture.

ZERO COUPON SUBORDINATED
CONVERTIBLE NOTES DUE 2004
On July 9, 1993, the Company called for redemption all of its zero coupon
subordinated convertible notes due 2004 (the "Convertible Notes due 2004"), of
which $290,507,000, net of unamortized discount of $409,493,000, was
outstanding at August 9, 1993. The Convertible Notes due 2004 could have been
converted into shares of Class B Common Stock, par value $0.0625 per share, at
any time before the close of business on August 9, 1993, at the rate of 15
shares of Class B Common Stock for each $1,000 principal amount at maturity.
All Convertible Notes due 2004 which were not converted into shares of Class B
Common Stock were redeemed on August 9, 1993, at a redemption price of $415.01
in cash for each $1,000 principal amount at maturity. The price reflects
accrued original issue discount at the rate of 8% compounded semi-annually to
the redemption date.

ZERO COUPON SUBORDINATED
CONVERTIBLE NOTES DUE 2007
The zero coupon subordinated convertible notes due February 13, 2007 (the
"Convertible Notes due 2007") were issued at $343.61 per $1,000 principal
amount at maturity with no periodic payments of interest. The issue price of
the Convertible Notes due 2007 represents a yield to maturity of 7.25%
annually. Each $1,000 principal amount at maturity is convertible at the option
of the holder, at any time on or prior to maturity, into 12.783 shares of Class
B Common Stock. The conversion rate will not be adjusted for accrued original
issue discount but will be subject to adjustment upon the occurrence of certain
events affecting Class B Common Stock and, upon conversion, the holder will not
receive any cash payment representing accrued original issue discount. The
Convertible Notes due 2007 are redeemable on or after February 13, 1995, at the
option of the Company, at redemption prices equal to the issue price plus
accrued original issue discount to the date of redemption. Each holder of
Convertible Notes due 2007 will have the option of requiring the Company to
purchase such holder's Convertible Notes due 2007 on February 13, 1997, for a
purchase price of $490.58 (the issue price plus accrued original issue discount
to such date) per $1,000 principal amount at maturity to be paid, at the option
of the Company, in cash or shares of Class B Common Stock or any combination
thereof.

42
<PAGE> 54

OTHER
Maturities of long-term debt, including debt discount, for each of the five
years following December 31, 1994, are: $1,345,000, $1,324,000, $1,317,000,
$101,408,000 and $591,085,000, respectively, and $2,162,238,000 after 1999.
Included in the maturities of long-term debt are obligations under capital
leases of $1,299,000, $1,273,000, $1,261,000, $1,346,000 and $1,016,000 for
each of the five years following December 31, 1994, respectively, and $5,000
after 1999. Obligations for film contracts payable and obligations for deferred
compensation, including imputed interest, for each of the five years following
December 31, 1994, are: $55,181,000, $34,138,000, $27,693,000, $7,400,000 and
$804,000, respectively, and $11,785,000 after 1999.
The redemption of the Convertible Notes due 2004 and cancellation of the
1989 Credit Agreement and the CNN Center Ventures Credit Agreement resulted in
an extraordinary charge of $10,693,000, net of approximately $6,253,000 of tax
benefit, representing the write-off of unamortized debt issue costs in 1993.
The redemption of the Subordinated Debentures resulted in an extraordinary
charge of $24,996,000, net of $15,981,000 of tax benefit, representing the
redemption premium and the write-off of original issue discount.

NOTE 6 FAIR VALUE OF FINANCIAL INSTRUMENTS

Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet,
for which it is practicable to estimate such value. In cases where quoted
market prices are not available, fair values are based on estimates using
present value or other valuation techniques.
The following methods and assumptions were used by the Company to estimate
the fair value of its significant financial instruments:

CASH AND CASH EQUIVALENTS
The carrying amount reported as of December 31, 1994 and 1993 approximates fair
value.

INSTALLMENT CONTRACTS RECEIVABLE
Installment contracts receivable are recorded net of discount and as such the
carrying amount reported as of December 31, 1994 and 1993 approximates fair
value.

FILM CONTRACTS PAYABLE
Film contracts payable are recorded net of discount and as such the carrying
amount reported as of December 31, 1994 and 1993 approximates fair value.

LONG-TERM DEBT
The borrowings at December 31, 1994 under the Company's 1993 and 1994 Credit
Agreements and at December 31, 1993 under the 1993 Credit Agreement have
floating interest rates and, therefore, approximate fair value. The fair value
at December 31, 1994 of the Senior Notes, the Senior Debentures, the Notes and
the Convertible Notes due 2007 and at December 31, 1993 of the Subordinated
Debentures, the Notes and the Convertible Notes due 2007 is based on quoted
market values on the respective dates. See Note 5 of Notes to Consolidated
Financial Statements.

INTEREST RATE SWAP AGREEMENTS
The fair value of the interest rate swap agreements is the amount the
counterparties would charge the Company to terminate the swap agreements on
that date. See Note 5 of Notes to Consolidated Financial Statements.
The carrying amounts and estimated fair values of the Company's long-term
debt, net of obligations under capital leases, including amounts related to the
interest rate swap agreements of $2,300,000 and $30,800,000 at December 31,
1994 and 1993, respectively, are as follows:

<TABLE>
<CAPTION>
December 31,
in thousands 1994 1993
--------------------------------------------------------------------------------
<S> <C> <C>
Fair value $2,360,000 $2,386,000
Carrying amount 2,513,000 2,290,000
--------------------------------------------------------------------------------
</TABLE>

The 1994 excess of carrying value over fair value of long-term debt, net of
obligations under capital leases, is principally due to an increase in market
interest rates since the original issuance of the Senior Notes, the Senior
Debentures and the Notes. The 1993 excess of fair value over carrying value of
long-term debt, net of obligations under capital leases, is principally due to
a decline in market interest rates since the original

43
<PAGE> 55

issuance of the Subordinated Debentures and the Convertible Notes due 2007 and
the inception of the interest rate swap agreements.

INTERNATIONAL EXCHANGE RATE FLUCTUATIONS
The Company is exposed to financial risk as a result of international currency
fluctuations due to its international operations. During 1994, such risk was
immaterial.

NOTE 7 INCOME TAXES

Effective January 1, 1993, the Company adopted FAS 109. The adoption of FAS 109
changed the Company's method of accounting for income taxes from the deferred
method pursuant to Accounting Principles Board Opinion No. 11, to an asset and
liability approach. FAS 109 requires recognition of deferred tax liabilities
and assets for the expected future tax consequences of events that have been
included in the financial statements or tax returns. Using the enacted tax
rates in effect for the year in which the differences are expected to reverse,
deferred tax liabilities and assets are determined based on the differences
between the financial reporting and the tax basis of an asset or liability.
The cumulative adjustment for income taxes as a result of the adoption of
FAS 109 on January 1, 1993 was a non-recurring charge to earnings of
$306,000,000 and is reflected in the 1993 Consolidated Statement of Operations
as a cumulative effect of a change in accounting for income taxes. The amount
relates primarily to the TEC Film Library where there were substantial
differences between amounts recorded for financial reporting purposes and for
income tax purposes. The FAS 109 cumulative adjustment includes $45,000,000
representing the Company's 50% share of the FAS 109 cumulative adjustment
recorded by Hanna-Barbera Entertainment Company, now Hanna-Barbera Holding
Company, which was acquired in 1991. See Note 2 of Notes to Consolidated
Financial Statements.
The provision (benefit) for income taxes for the three years ended December
31, 1994 consists of the following:

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $ 42,279 $ 12,646 $ 45,105
State and local 18,416 9,381 11,743
International 18,525 12,720 8,836
Deferred
Federal (23,647) 18,147 --
Increase in federal tax rate -- 6,788 --
State and local (12,144) (6,691) --
International (10,258) (4,867) --
--------------------------------------------------------------------------------
Provision for income taxes
before extraordinary item 33,171 48,124 65,684
Extraordinary item -
realization of operating
loss carryforwards
Federal -- -- (41,308)
State -- -- (2,253)
--------------------------------------------------------------------------------
Net provision for
income taxes $ 33,171 $ 48,124 $ 22,123
================================================================================
</TABLE>

The provision for income taxes differs from the amount computed by applying
the applicable U.S. statutory federal income tax rate (35% in 1994 and 1993 and
34% in 1992) to pretax income from continuing operations as a result of the
following items:

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal tax provision on
pretax income before
extraordinary items
at statutory federal
income tax rate $ 27,763 $ 42,199 $ 33,913
Increase (decrease) due to:
Increase in federal
income tax rate -- 6,788 --
State and local taxes, net
of federal benefit 4,077 1,749 7,750
Equity in income of
unconsolidated entities -- (3,686) --
Purchased film costs and
related intangibles -- -- 10,705
Nondeductible expenses 5,227 -- --
International taxes, net
of federal benefit -- -- 8,836
Change in valuation
analysis (3,500) -- --
Other (396) 1,074 4,480
--------------------------------------------------------------------------------
Provision for income taxes
before extraordinary item $ 33,171 $ 48,124 $ 65,684
================================================================================
</TABLE>

44
<PAGE> 56

Deferred tax assets (liabilities) consist of the following:

<TABLE>
<CAPTION>
December 31, January 1,
in thousands 1994 1993 1993
-----------------------------------------------------------------------------
<S> <C> <C> | <C>
Deferred tax assets |
Accruals and reserves $ 57,504 $ 43,478 | $ 33,759
Tax credits and net |
operating losses 30,465 39,682 | 86,556
Fixed assets -- 3,547 | --
Other 17,544 25,924 | 11,804
---------------------------------------------------------------|-------------
105,513 112,631 | 132,119
---------------------------------------------------------------|-------------
Valuation allowance on |
deferred tax assets (5,223) (8,723) | (8,723)
---------------------------------------------------------------|-------------
Deferred tax liabilities |
Film costs and related |
intangibles (426,931) (417,018) | (337,491)
Accounts receivable (34,656) (44,247) | (19,635)
Other (17,266) (18,620) | (26,770)
---------------------------------------------------------------|-------------
(478,853) (479,885) | (383,896)
---------------------------------------------------------------|-------------
$(378,563) $(375,977) | $(260,500)
=============================================================================
</TABLE>

The valuation allowance for deferred tax assets at December 31, 1994 was
$5,223,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was a decrease of $3,500,000, relating to foreign tax credits
("FTC").
At December 31, 1994, investment tax credit ("ITC") carryforwards of
approximately $2,800,000 were available to offset future federal income tax.
For tax purposes, the ITC carryforwards will expire from 1999 through 2001.
Additionally, an alternative minimum tax credit of approximately $6,000,000 is
available to offset the Company's regular tax liability in future years.
In connection with the Company's 1986 purchase of Metro-Goldwyn-Mayer
Inc./United Artists ("MGM/ UA") the Company also acquired certain ITC
carryforwards which can only be used to reduce the federal income tax liability
of Turner Entertainment Co. ("TEC"), a wholly-owned subsidiary of the Company.
As of December 31, 1994, approximately $11,600,000 of ITC carryforwards remain
available to offset the future tax liability of TEC. The realization of tax
benefits from the utilization of the remaining TEC carryforwards is dependent
on TEC having future taxable income. The unused ITC carryforwards will begin
expiring in 1999.
In connection with the Company's 1993 purchase of the remaining 50% of the
Joint Venture, the Company also acquired certain net operating loss ("NOL") and
FTC carryforwards which can only be used to reduce the federal income tax
liability of the Joint Venture. As of December 31, 1994, approximately
$4,500,000 of NOL carryforwards and approximately $1,100,000 of FTC
carryforwards remain available to offset the future tax liability of the Joint
Venture.
The 1991 and 1992 consolidated federal income tax returns of the Company are
presently under examination by the Internal Revenue Service ("IRS").
The ultimate result of the examinations cannot be predicted at this time. In
the opinion of management, any additional tax liability resulting from these
examinations would not have a material adverse impact on the consolidated
financial position or operating results of the Company.
The Company's tax liability has been reduced by approximately $459,000 and
$13,359,000 in 1994 and 1993, respectively, representing realization of the tax
benefits associated with the exercise of stock options. This benefit has been
recorded as an increase to the Company's capital in excess of par value.

NOTE 8 COMMITMENTS AND CONTINGENCIES

COMMITMENTS
In addition to long-term noncancellable operating lease commitments for
vehicles, sports facilities, satellite transmission facilities and office
space, the Company's principal revenue-producing operations enter into extended
commitments integral to their respective operations.

Amounts payable for the commitments discussed in Note 8 are summarized as
follows:

<TABLE>
<CAPTION>
Licensed Produced Employment
in thousands program rights programming Newsgathering contracts
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995 $ 79,978 $404,733 $ 5,904 $ 72,080
1996 68,688 240,507 2,636 63,512
1997 56,371 233,288 2,537 52,879
1998 50,983 69,774 480 127,685
1999 and thereafter 101,440 -- 1,618 24,794
--------------------------------------------------------------------------------
$357,460 $948,302 $13,175 $340,950
================================================================================

================================================================================
</TABLE>

45
<PAGE> 57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

At December 31, 1994, the Company was obligated to make future payments
under contracts for licensed film rights not currently available for use and,
therefore, not included in the consolidated balance sheet. The Company also has
commitments under contracts for rights to or production of other programming
not yet produced, of which $734,953,000 relates to sports programming.
The Company has contracted for newsgathering services and technical support
at bureaus and overland transmission services, payable in varying amounts
through 2019. In June 1990, the Company entered into an exclusive domestic
syndication and licensing agreement, as amended, under which the Company
committed to make up to a $10,000,000 advance, recoupable against sales over
the five-year period beginning September 1997, to the extent that the Company
generates less than $72,000,000 of gross sales less distribution costs, as
defined, over the five-year period beginning September 1992.
Long-term employment contracts currently in effect provide for, among other
items, aggregate annual compensation for baseball players and other employees
of the Company. These amounts represent the maximum possible obligation,
including potential incentive compensation for certain baseball players
(although certain incentive compensation cannot be earned by more than one
baseball player per season) that can be earned under the terms of the
contracts. Amounts payable for the above noted commitments are summarized
at the bottom of page 45.

CONTINGENCIES AND PENDING LITIGATION
Because of the nature of its principal revenue-producing activities, the
Company is, in the routine operation of its business, subject to litigation,
claims, assessments and various legal matters. In the opinion of management,
none of these matters is expected to result in a judgment having a material
adverse effect on the Company's consolidated financial position or results of
operations.
Pursuant to an Indemnification Agreement (the "Indemnification Agreement"),
as executed in connection with the Company's acquisition of MGM/UA and as
supplemented at the time the Company sold certain assets to United Artists
Corporation on August 25, 1986, the Company assumed responsibility for a
variety of lawsuits and claims from MGM/UA. Generally, these lawsuits and
claims arose in the normal course of MGM/UA's business. The Company believes
that the resolution of the suits and claims for which it assumed responsibility
pursuant to the Indemnification Agreement will not have a material adverse
impact on the consolidated financial position or operating results of the
Company.
The Company is currently in negotiations with a financial institution
whereby the Company will be able to sell on an ongoing basis and without
recourse up to $300,000,000 of an undivided percentage ownership interest in a
designated pool of domestic cable and advertising accounts receivable.
Proceeds from the sale will be used to repay amounts outstanding under the
Company's bank credit facilities. The ongoing costs of the program are
anticipated to be less than those the Company would have otherwise incurred
under the bank credit facilities.

NOTE 9 STOCKHOLDERS' EQUITY (DEFICIT)

COMMON STOCK
Prior to June 1992, each share of Class A and Class B Common Stock was
identical in all respects except for cash dividends and voting privileges. In
the case of cash dividends, the amount of such dividends payable on Class A
Common Stock was 90% of the amount payable per share on the Class B Common
Stock. In June 1992, the Company amended its Articles of Incorporation to
permit the payment of equal cash dividends per share on the Class A Common
Stock and Class B Common Stock. In the case of voting privileges, the Class A
Common stockholders were entitled to one vote per share and the Class B Common
stockholders are entitled to one-fifth vote per share. In June 1994, the
Company amended its Restated Articles of Incorporation to increase the voting
power of the Class A Common Stock to two votes per share.
In February 1992, the Board of Directors declared cash dividends upon the
Company's outstanding shares of Class A Common Stock and Class B Common Stock,
payable at the rate of $0.01125 for each share of Class A Common Stock held and
$0.0125 for each share of Class B Common Stock held. In addition, holders of
the Company's outstanding Class C Preferred Stock were entitled to an
equivalent cash dividend ($0.0750 for each share held) based on the number of
underlying

46
<PAGE> 58

shares of Class B Common Stock. Following the amendment of the Company's
Articles of Incorporation, the Finance Committee declared dividends payable for
each of the remaining quarters of 1992 at the rate of $0.0125 for each
outstanding share of Class A Common Stock and Class B Common Stock and $0.0750
for each share of Class C Preferred Stock.
In 1993 and 1994, the Board of Directors declared cash dividends on the
Company's outstanding shares of Class A Common Stock and Class B Common Stock,
payable at the rate of $0.0175 for each share held on the respective record
dates each quarter. In addition, holders of the Company's outstanding Class C
Preferred Stock were entitled to equivalent cash dividends of $0.105 for each
share held on the record date each quarter based on the number of shares of
Class B Common Stock which would be receivable upon conversion of each share of
Class C Preferred Stock.
The Company's ability to pay cash dividends to holders of shares of the
Class A and Class B Common Stock and the Class C Preferred Stock is subject to
certain covenants in the Company's outstanding debt instruments, currently the
most restrictive of which limits the maximum aggregate amount of dividends
permitted to be paid annually to such holders to $30,000,000.
During 1994, approximately 24,000 shares of Class B Common Stock were issued
to certain officers and employees. During 1993, approximately 300,000 shares of
Class B Common Stock were issued to certain officers and employees and in
conjunction with the redemption of the Convertible Notes due 2004. See Note 5
of Notes to Consolidated Financial Statements.
On September 30, 1992, the Company issued 11,500,000 shares of Class B
Common Stock through a public offering, resulting in net proceeds of
approximately $204,644,000.

CLASS C CONVERTIBLE PREFERRED STOCK AND CLASS B CUMULATIVE PREFERRED STOCK
On June 3, 1987, the Company issued to a group of investors (the "Units
Investors") an aggregate of 12,396,976 units of its securities (the "Units
Offering"), each unit composed of one share of the Company's Class B Cumulative
Preferred Stock (the "Class B Preferred Stock") and one share of the Company's
Class C Preferred Stock, for an aggregate consideration of approximately
$568,194,000, or $45.8333 per unit. All of the outstanding shares of Class B
Preferred Stock have been redeemed by the Company.
The terms of the Class C Preferred Stock provide for conversion to Class B
Common Stock, at the option of the holder, at a current rate of six shares of
Class B Common Stock for every one share of Class C Preferred Stock at any date
prior to redemption. The Class C Preferred stockholders are entitled to vote as
though they held the Class B Common Stock underlying the Class C preferred
shares and are entitled to vote as a separate class for seven members of the
Company's 15 member board of directors. In addition, holders of the Class C
Preferred Stock are entitled to dividends (non-cumulative) based on the number
of underlying shares of Class B Common Stock. If the number of outstanding
shares of Class C Preferred Stock is less than 4,000,000, the right of the
Class C preferred stockholders to vote as a separate class for seven directors
ceases and the Company may redeem the then outstanding shares at a redemption
price per share equal to the common stock equivalent price on the redemption
date.

47
<PAGE> 59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

STOCK OPTIONS
The Company has two stock option plans under which options may be granted to
certain key employees at prices determined by the Stock Option and Compensation
Committee. The 1983 Stock Option Plan (the "1983 Plan") expired in 1993; no
options were granted, exercised, canceled or expired under this plan in 1992,
1993 or 1994. Under the 1988 Stock Option Plan (the "1988 Plan"), options may
not be granted at less than par value on the date of grant but may be granted
at less than the fair market value ("FMV") on the date of grant, except for an
incentive stock option. The option price per share subject to an incentive
stock option may not be less than the greater of 100% of the FMV per share on
the grant date, or the par value per share; however, in the case of an
incentive stock option granted to a 10% shareholder, the option price per share
may not be less than the greater of 110% of FMV per share on the date of grant
or the par value per share. All options granted under the 1988 Plan have been
granted at FMV. At December 31, 1994, the total number of shares available for
the grant of options under the 1988 Plan was 571,809 Class B common shares.
Under the 1993 Stock Option and Equity-Based Award Plan (the "1993 Plan"),
adopted November 15, 1993, options may not be granted at less than par value on
the date of grant but may be granted at less than the FMV on the date of grant,
except for an incentive stock option. The option price per share subject to an
incentive stock option may not be less than the greater of 100% of the FMV per
share on the grant date, or the par value per share; however, in the case of an
incentive stock option granted to a 10% shareholder, the option price per share
may not be less than the greater of 110% of FMV per share on the date of grant
or the par value per share. At December 31, 1994, the total number of shares
available for the grant of options under the 1993 Plan was 2,125,000 Class B
common shares.
In connection with the Merger, the Company assumed three New Line Stock
Option Plans in effect at that time. Acccordingly, each New Line stock option
outstanding at the time of the Merger constituted an option to acquire the
same number of shares of Class B Common Stock as the holder of the New Line
stock option would have been entitled to receive pursuant to the Merger had
such holder exercised such option in full immediately prior to the Merger.
Transactions relating to rights to purchase Class B Common Stock under the
1988 Plan, 1993 Plan and pursuant to the Merger for the three years ended
December 31, 1994, are summarized below:

<TABLE>
<CAPTION>
Exercise Price(1)
-------------------------
in thousands, except share data Number of shares Per share Aggregate
--------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance at December 31, 1991 4,259,603
Granted 649,550
Exercised (479,164) $2.792 - 13.170 $2,328
Canceled or expired (85,869)
--------------------------------------------------------------------------------
Balance at December 31, 1992 4,344,120
Granted 2,070,300
Exercised (754,621) $2.792 - 19.500 $7,490
Canceled or expired (188,025)
--------------------------------------------------------------------------------
Balance at December 31, 1993 5,471,774
Granted 5,346,950
Assumed in conjunction with Merger 3,419,997
Exercised (191,908) $2.792 - 19.500 $1,821
Canceled or expired (110,069)
--------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 1994 13,936,744
================================================================================
</TABLE>

(1) The options outstanding at December 31, 1994, are exercisable at prices
ranging from $1.3207 to $27.250 per share for a total exercise price of
$258,645,000. The majority of the stock options are exercisable at $26.25
(3,215,000 shares), $11.235 (1,658,076 shares), $13.170 (1,383,746 shares),
$27.125 (1,301,000 shares), $17.625 (1,197,550 shares), $25.625
(1,114,300 shares) and $2.792 (694,459 shares).

48
<PAGE> 60

The Company has reserved shares of common stock for issuance upon exercise
of outstanding stock options, conversion of the Class C Preferred Stock, the
Convertible Notes due 2007 and the convertible subordinated debentures of a
wholly-owned subsidiary.

NOTE 10 RETIREMENT SAVINGS PLANS

The Company has four domestic defined contribution retirement plans. The Turner
Broadcasting System, Inc. Retirement Savings Plan is a tax qualified savings
plan with matching Company contributions, which covers essentially all
employees of the Company, except the Atlanta National League Baseball Club,
Inc., employees based outside the United States and employees subject to
collective bargaining agreements. A non-qualified supplemental savings plan
with matching Company contributions covers employees with compensation in
excess of the amount taken into consideration by the tax qualified savings plan
and a non-qualified retirement plan covers certain key employees. The Atlanta
Braves Retirement Savings Plan is a tax qualified savings plan without a
matching Company contribution, which covers non-uniformed employees of the
Atlanta National League Baseball Club, Inc.
The Company has a defined benefit retirement plan which covers non-uniformed
personnel of the Atlanta National League Baseball Club, Inc. The Company also
has a defined contribution retirement plan which is tax qualified in the United
Kingdom and covers essentially all employees in London.
The Company's total contribution for all plans described above was
$13,391,000, $10,537,000 and $9,484,000 for 1994, 1993 and 1992, respectively.

NOTE 11 RELATED PARTY TRANSACTIONS

Most of the investors in the Company's Units Offering have ongoing business
relationships with the Company, primarily as operators, directly or through
affiliates, of cable television systems which receive and distribute to their
subscribers programming provided by the Company's cable television operations.
See Note 9 of Notes to Consolidated Financial Statements.
The Company recorded subscription fees from the Unit Investors for the
delivery of such cable services (CNN, Headline News, TNT, Cartoon Network and
Turner Classic Movies ("TCM")), before deductions for advertising allowances, of
approximately $348,593,000 for 1994, $274,317,000 for 1993 and $252,257,000 for
1992. These amounts constituted approximately 63%, 54% and 57% of the Company's
total subscription revenue for CNN, Headline News, TNT, Cartoon Network and TCM
during each respective year. At December 31, 1994 and 1993, the receivables
from the Unit Investors aggregated approximately $103,432,000 and $94,011,000,
respectively. Advertising revenues received by the Company during 1994 were
also indirectly dependent to a substantial degree on cable television systems
operated by the Unit Investors or their affiliates since subscribers to those
systems constituted approximately 66%, 66%, 67%, 67% and 62% of the cable
audience coverage as of December 1994 for TBS SuperStation, CNN, Headline News,
TNT and Cartoon Network, respectively. The Company has exposure to credit risk
associated with the concentration of revenues with the Unit Investors, but does
not consider the risk to be material.
Pursuant to a 1986 agreement with Metro-Goldwyn-Mayer Inc.'s ("MGM")
predecessor, MGM became the designated distributor in the home video market of
most MGM and pre-1950 Warner Bros. films in the TEC Film Library, both
domestically and internationally, and certain RKO films internationally. The
distribution agreement, as subsequently amended (the "Home Video Agreement"),
provides for a 15-year term commencing June 6, 1986 with distribution fees
payable based primarily on the suggested retail price of the films sold. In
November 1990, MGM entered into an agreement with Warner Home Video, Inc.
("WHV"), a wholly-owned subsidiary of Time Warner Inc. ("TWI"), wherein WHV
agreed to service certain MGM obligations under the Home Video Agreement.
Revenues recorded in 1994, 1993 and 1992 pursuant to this agreement were
$104,080,000, $81,723,000 and $105,729,000, respectively.

<PAGE> 61
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

TWI and its subsidiaries have entered into license agreements with the
Company pursuant to which the Company has acquired broadcast rights to cer-
tain television and theatrical product. The Company paid an aggregate of
approximately $19,295,000, $13,933,000 and $13,196,000 for license fees during
1994, 1993 and 1992, respectively, under these agreements and is committed to
pay $69,405,000 through 2001 under these agreements. Additionally, TWI has an
ownership interest in n-tv. See Note 2 of Notes to Consolidated Financial
Statements.

NOTE 12 SUPPLEMENTAL CASH FLOW INFORMATION

Supplemental disclosure of cash flow information and non-cash investing and
financing activities include:

<TABLE>
<S> <C>
Year ended December 31,
in thousands 1994 1993 1992
--------------------------------------------------------------------------------
Interest paid, net of
interest received $198,042 $137,664 $150,229
Payments of accreted
interest upon redemption
of related securities -- 74,683 --
Cash paid for income taxes 36,721 18,405 12,778
Disposal of fixed assets -- 16,327 --
================================================================================
</TABLE>

On January 28, 1994, the Company completed the Merger with New Line as
follows (in thousands):

<TABLE>
<S> <C>
Fair value of assets acquired $666,900
Less: common stock issued or issuable 406,700
cash paid for debt and
other acquisition costs 139,600
--------------------------------------------------------------------------------
Liabilities assumed, including
Convertible Debentures $120,600
================================================================================
</TABLE>

In 1993, the Company purchased Castle Rock and the remaining 50% of the
Joint Venture and assumed liabilities as of December 31, 1993 (in thousands) as
follows:

<TABLE>
<S> <C>
Fair value of assets acquired $655,000
Less: cash paid for capital stock and debt 258,500
cash paid for partnership interest, debt
and other acquisition costs 318,900
--------------------------------------------------------------------------------
Liabilities assumed $ 77,600
================================================================================
</TABLE>

NOTE 13 BUSINESS SEGMENT INFORMATION

The Company is a diversified entertainment and information company whose
primary business segments include Entertainment and News. Through its
subsidiaries, the Company owns and operates four domestic entertainment
networks, four international entertainment networks and three news networks.
The Company produces, finances and distributes entertainment programming
worldwide, with operations in motion pictures, animation and television
production, home video, television syndication, licensing and merchandising,
and publishing.
The table on page 51 summarizes the Company's operating results by business
segment. Revenues by business segment include revenues between business
segments which are accounted for on substantially the same basis as revenues
from unaffiliated customers. Intrasegment and intersegment revenues are
primarily fees for production services billed by Entertainment or News, and for
lease rentals and facility services billed by the Other segment.
The Company derives export sales revenues from the transmission of its
entertainment and news program services in international markets. In addition,
the Company distributes, either directly or through third-party distributors,
motion pictures and other filmed entertainment product internationally in the
theatrical, home video, pay television, basic cable and over-the-air markets.
Total revenues from the export sale of the Company's products and services
amounted to approximately $393,000,000, $240,000,000 and $222,000,000 for the
years ended December 31, 1994, 1993 and 1992, respectively. Approximately 50%,
25% and 16% of the 1994 export sales were from customers in Europe, Asia and
Latin America, respectively. Approximately 45%, 24% and 23% of the 1993 export
sales were from customers in Europe, Latin America and Asia, respectively.
Approximately 58% and 20% of the 1992 export sales were from customers in
Europe and Asia.

50
<PAGE> 62

BUSINESS SEGMENT INFORMATION

<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1994 1993 1992
<S> <C> <C> <C>
--------------------------------------------------------------------------------
Total revenue
Entertainment
Networks $ 1,035,775 $ 934,248 $ 822,350
Production and Distribution 1,050,374 267,035 280,529
Intrasegment revenue elimination (84,920) (39,001) (24,312)
----------------------------------------
Total Entertainment 2,001,229 1,162,282 1,078,567
News 667,182 599,352 531,071
Other 164,072 182,339 180,678
Intersegment revenue elimination (23,358) (22,367) (20,424)
--------------------------------------------------------------------------------
$ 2,809,125 $ 1,921,606 $ 1,769,892
================================================================================
Operating profit (loss) (1)
Entertainment
Networks $ 128,289 $ 165,530 $ 147,648
Production and Distribution (27,344) (23,605) (5,608)
Intrasegment elimination 18,507 1,320 9,798
----------------------------------------
Total Entertainment 119,452 143,245 151,838
News 227,374 212,202 178,404
Other (70,929) (33,267) (36,836)
Gain on sale of equity investment 21,746 -- --
Equity in loss of unconsolidated
entities (2) (10,001) (20,040) (4,024)
--------------------------------------------------------------------------------
$ 287,642 $ 302,140 $ 289,382
================================================================================
Depreciation and amortization
of goodwill
and other intangibles (3)
Entertainment
Networks $ 7,533 $ 5,445 $ 3,304
Production and Distribution 17,051 1,508 672
----------------------------------------
Total Entertainment 24,584 6,953 3,976
News 13,135 11,147 9,107
Other 21,026 21,173 20,503
--------------------------------------------------------------------------------
$ 58,745 $ 39,273 $ 33,586
================================================================================
Identifiable assets at end of year
Entertainment
Networks $ 788,406 $ 779,220 $ 668,432
Production and Distribution 2,727,319 1,932,751 1,253,250
----------------------------------------
Total Entertainment 3,515,725 2,711,971 1,921,572
News 282,111 218,040 170,663
Other 274,709 314,851 431,338
--------------------------------------------------------------------------------
$ 4,072,545 $ 3,244,862 $ 2,523,573
================================================================================
Capital expenditures
Entertainment
Networks $ 40,053 $ 9,797 $ 9,113
Production and Distribution 8,687 2,559 687
----------------------------------------
Total Entertainment 48,740 12,356 9,800
News 26,648 14,479 9,959
Other 33,848 23,735 27,472
--------------------------------------------------------------------------------
$ 109,236 $ 50,570 $ 47,231
================================================================================
</TABLE>

(1) Operating profit (loss) is defined as income (loss) before interest
expense, interest income, income taxes, extraordinary items and the
cumulative effect of a change in accounting for income taxes.
(2) Equity in loss of unconsolidated entities includes the results, in
applicable years, of a 50% interest in Hanna-Barbera Holding Company; a
27.5% interest in n-tv acquired March 31, 1993; a 96% interest in the
Atlanta Hawks; a 44% interest in the SportSouth Network; a one-third
interest in a joint venture which operates a computerized ticket sales
agency; and costs associated with a commitment for a 50% joint venture
interest in Moscow which was discontinued in late 1994.
(3) Includes depreciation on property and equipment and amortization associated
with other intangible assets.

51
<PAGE> 63

NOTES TO CONSOLDIATED FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

NOTE 14 UNAUDITED QUARTERLY FINANCIAL INFORMATION

<TABLE>
<CAPTION>
1994 Three months ended
in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Revenue $ 567,304 $677,647 $738,889 $825,285
Operating profit (1) 29,949 74,242 87,537 95,914
Income (loss) before extraordinary items (13,624) 12,919 20,383 26,475
Net income (loss) (2) (13,624) 12,919 (4,613) 26,475
========= ======== ======== ========
Earnings (loss) per common share
Income (loss) before extraordinary items $ (0.07) $ 0.05 $ 0.07 $ 0.09
Net income (loss) $ (0.07) $ 0.05 $ (0.02) $ 0.09
========= ======== ======== ========

1993 Three months ended
in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31(3)
--------- -------- -------- --------
Revenue $ 398,424 $486,861 $501,289 $535,032
Operating profit (1) 80,250 97,167 59,948 64,775
Income before extraordinary items and the cumulative
effect of a change in accounting for income taxes 20,135 31,071 7,154 14,085
Cumulative effect of a change in accounting for income taxes (306,000) -- -- --
Net income (loss)(2) (285,865) 31,071 1,018 9,528
Earnings per common share
Income before extraordinary items and the cumulative
effect of a change in accounting for income taxes $ 0.08 $ 0.12 $ 0.02 $ 0.05
Net income (loss) $ (1.08) $ 0.12 $ 0.00 $ 0.04
========= ======== ======== ========
</TABLE>

(1) Operating profit is defined as income before interest expense, interest
income, income taxes, extraordinary items and the cumulative effect of a
change in accounting for income taxes, where applicable.
(2) Extraordinary losses on early extinguishments of debt of $10,051,000,
$6,895,000 and $40,977,000, net of income tax benefits of $3,926,000,
$2,327,000 and $15,981,000, respectively, for the three months ended
September 30, 1993, December 31, 1993 and September 30, 1994, respectively,
are included in the calculation of net income.
(3) The three-month period ended December 31, 1993 includes a $16,000,000
increase in operating profit due primarily to changes in certain estimates
based on additional financial information obtained during such period.

52
<PAGE> 64
REPORT OF
INDEPENDENT ACCOUNTANTS

To the Stockholders and Board of Directors of Turner Broadcasting System, Inc.

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of cash flows and of changes in
stockholders' equity (deficit) present fairly, in all material respects, the
financial position of Turner Broadcasting System, Inc. and its subsidiaries at
December 31, 1994 and 1993, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1994, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
As discussed in Note 7 to the Consolidated Financial Statements, the Company
changed its method of accounting for income taxes in 1993.

/s/ PRICE WATERHOUSE LLP
------------------------
PRICE WATERHOUSE LLP
Atlanta, Georgia
February 15, 1995

MANAGEMENT'S RESPONSIBILITY
FOR FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.

The consolidated financial statements included in this report were prepared by
the Company in conformity with generally accepted accounting principles.
Management's best estimates and judgments were used, where appropriate.
Management is responsible for the integrity of the financial statements and for
other financial information included in this report. The financial statements
have been audited by the Company's independent accountants, Price Waterhouse
LLP. As set forth in their report, their audit was conducted in accordance with
generally accepted auditing standards and formed the basis for their opinion on
the accompanying financial statements. They evaluate the system of internal
accounting control and perform such tests and other procedures as they deem
necessary to reach and express an opinion on the fairness of the financial
statements.
The Company maintains a system of internal accounting controls which is
designed to provide a reasonable assurance that assets are safeguarded and that
the financial records reflect the authorized transactions of the Company. As a
part of this process, the Company has an internal audit function which
evaluates the adequacy and effectiveness of internal accounting controls.
The Audit Committee of the Board of Directors consists of directors who are
neither officers nor employees of the Company. The Committee meets periodically
with management, internal auditors and the independent accountants to discuss
auditing, internal accounting control and financial reporting matters. The
Director of Internal Audit and the independent accountants have full and free
access to meet with the Audit Committee with and without management being
present.

/s/ Wayne H. Pace /s/ William S. Ghegan
------------------------ ------------------------
Wayne H. Pace William S. Ghegan
Vice President - Finance and Vice President,
Chief Financial Officer Controller and Chief
Accounting Officer

53
<PAGE> 65

Investor Information
Turner Broadcasting System, Inc.

COMMON STOCK TRANSFER AGENT AND REGISTRAR

First Union National Bank of North Carolina
Shareholders Services Group
230 South Tryon Street
Charlotte, North Carolina 28202-1154
(800) 729-8432

TRUSTEES AND PAYING AGENTS

Credit Agreements
The Chase Manhattan Bank, N.A.
90 William Street
New York, New York 10081

8 3/8% Senior Notes due 2013
7.4% Senior Notes and 8.4% Senior Debentures
The First National Bank of Boston
P.O. Box 1618
Boston, Massachusetts 02105

Zero Coupon Subordinated Convertible Notes due 2007
The Bank of New York
Corporate Trust Administration Group
101 Barclay Street, 21st Floor
New York, New York 10286

PRICE RANGE OF COMMON STOCK

The Class A Common Stock trades on the American Stock Exchange ("AMEX") under
the symbol "TBS.A" and the Class B Common Stock trades on the AMEX under the
symbol "TBS.B." The following table sets forth, for the periods indicated, the
high and low closing sales prices per share of common stock on the AMEX
Composite Tape.

<TABLE>
<CAPTION>
Calendar Year
-----------------------------------------
1994 1993
High Low High Low
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter
Class A $27 5/8 $20 1/2 $23 3/4 $19 1/2
Class B 27 3/4 20 1/2 23 1/2 19 1/4
Second quarter
Class A 20 17 1/8 23 3/4 20
Class B 20 17 1/4 23 5/8 20
Third quarter
Class A 19 5/8 17 26 5/8 19 7/8
Class B 20 17 26 7/8 20 3/8
Fourth quarter
Class A 20 15 29 1/4 24 1/8
Class B 20 3/8 15 1/8 29 24 1/4
--------------------------------------------------------------------------------
</TABLE>

STOCKHOLDERS

The approximate number of holders of record of Class A Common Stock and Class B
Common Stock as of December 31, 1994 was 1,900 and 2,100, respectively. This
number does not include all individuals with beneficial interests in the stock.

DIVIDEND POLICY

Prior to 1992, the Company had not paid a cash dividend on its common equity
since 1975. In 1994 and 1993, the Company paid quarterly dividends of $0.01750
per share on both Class A Common Stock and Class B Common Stock. Holders of the
Company's Class C Preferred Stock were entitled to an equivalent cash dividend
of $0.105 for each share held based on the number of underlying shares of Class
B Common Stock.
The Indenture governing the 12% Senior Subordinated Debentures (redeemed in
1994), the Indenture governing the 8 3/8% Senior Notes, the 7.4% Senior Notes,
and the 8.4% Senior Debentures and the Company's bank credit agreements contain
provisions limiting the ability of the Company to pay cash dividends to the
holders of its common shares. Currently, the most restrictive covenant limits
the maximum aggregate amount of dividends permitted to be paid annually to such
holders to $30 million. In any event, the declaration of dividends on common
shares is within the discretion of the Board of Directors of the Company and is
therefore subject to many considerations, including financial covenants,
operating results, business and capital requirements and other factors.

RESTRICTIONS ON STOCK OWNERSHIP

The Communications Act of 1934 provides that no broadcast license may be held
by a corporation in which more than 20% of the capital stock is owned of record
or voted by non-U.S. citizens. The Communications Act further prohibits,
without Federal Communications Commission approval, the holding by a
corporation of the capital stock of another corporation owning a broadcast
license if more than 25% of the capital stock of such parent corporation is
owned of record or voted by non-U.S. citizens. The Company's Articles of
Incorporation incorporate these restrictions on non-U.S. ownership so that such
restrictions are applied separately to each class of the Company's capital
stock. The Company has reserved the right to refuse to transfer shares of its
capital stock which would result in a violation of these restrictions.

FORM 10-K REQUESTS

The Company will provide copies of its 1994 Form 10-K upon written request
directed to:
Kitsie Bassett Riggall
Assistant Vice President - Investor Relations
Turner Broadcasting System, Inc.
One CNN Center
Atlanta, Georgia 30303

<PAGE> 1
EXHIBIT 10.37

EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (hereinafter the "Agreement") is made as of
the 28th day of January, 1994, by and between NEW LINE CINEMA CORPORATION, a
Delaware corporation (hereinafter the "Employer"), and ROBERT SHAYE
(hereinafter the "Employee").

The Employer wishes to acknowledge the Employee's expertise in
connection with the business of the Employer including, but not limited to, the
development, production, and distribution of motion pictures, and reaffirms its
desire and intention and the desire and intention of the Employer's parent
corporation, Turner Broadcasting System, Inc. ("TBS"), to provide the Employee
with the degree of autonomy and scope of authority necessary, within the
framework of annual operating budgets and annual business plans approved by the
Boards of Directors of the Employer and TBS, to manage the day-to-day
operations of the Employer including, but not limited to (i) in conjunction
with Michael Lynne, "greenlighting" the Employer's full-length theatrical
motion pictures contemplated by the annual business plans for the Employer that
are approved by the Boards of Directors of Employer and TBS and have production
budgets appearing in the approved business plans of up to Thirty-five Million
Dollars ($35,000,000.00); (ii) hiring qualified staff reasonably necessary to
conduct efficiently and effectively the operations of the Employer, and
recommending to the Stock Option and Compensation Committee of the TBS Board of
Directors stock option grants for qualified members of such staff and
determining
<PAGE> 2
the compensation for such staff within the parameters of the Employer's
operating budget and consistent with the overall compensation policies and
parameters of the Employer and TBS with respect to similarly situated
employees; (iii) developing annual business plans and related operational
budgets for the Employer, and executing any such plans approved by the Boards
of Directors of the Employer and TBS, with due regard for TBS's overall
requirements for the exploitation and distribution of products provided by
Employer, TBS and any other motion picture production operations acquired by
TBS; and (iv) exercising such other authority consistent with the Employee's
duties and responsibilities hereunder as is reasonable or necessary for the
continued growth and success of the Employer. Both the Employer and the
Employee recognize, however, that notwithstanding the intentions of the
Employer and TBS, as set forth in this preamble, the Employer, TBS, their
respective Boards of Directors, and R.E. Turner (or such other person to whom
the Employee reports under paragraph 1(b) of this Agreement ("Turner's
Successor")) have fiduciary duties to the shareholders of TBS which must be
satisfied and responsibilities to conduct business in a manner that ultimately
is in the best interests of TBS and its shareholders. Consistent therewith, the
autonomy and scope of the Employee's authority will of necessity be subject to
(i) TBS's annual process for the creation, approval and modification by the
Boards of Directors of Employer and TBS or their designees of budgets and
business plans for TBS and other

-2-
<PAGE> 3
subsidiaries and divisions of TBS, (ii) the availability of TBS funds for
allocation to the Employer's business, (iii) the compliance by the Employee
with the terms and conditions of this Agreement, and (iv) the ultimate control
by R.E. Turner or Turner's Successor and the Boards of Directors of TBS and the
Employer. To the extent approved in the Employer's annual operating budgets and
business plans during the term of this Agreement, the Employer affirms the
intention of TBS and the Employer to provide funds reasonably sufficient to
conduct the business of the Employer in accordance with such budgets and
business plans as are from time to time approved by the Boards of Directors of
the Employer and TBS, subject to (i) TBS's overall corporate needs and
objectives; (ii) the availability of funds at a cost and on terms determined by
TBS to be reasonable and in the best interests of TBS and its shareholders;
(iii) compliance with TBS's financial covenants and obligations to lenders and
other creditors in effect from time to time; (iv) changes in financial,
operational or other circumstances in the businesses of the Employer or TBS;
(v) the success of the Employer and its prospects for such success together
with its contribution to the overall success of TBS; and (vi) the ultimate
control of R.E. Turner, Turner's Successor, and the Board of Directors of TBS
or Employer as noted above.

WHEREAS, contemporaneously herewith, NL Acquisition Co. has been
merged with and into the Employer and the Employer has become a wholly-owned
subsidiary of TBS; and

-3-
<PAGE> 4
WHEREAS, prior to such merger the Employee was Chairman of New Line
Cinema Corporation and the Employer recognizes that the Employee's contribution
to the growth and success of New Line Cinema Corporation was substantial and
desires to employ the Employee as Chairman and Chief Executive Officer of the
Employer during the term hereof on the terms and conditions set forth herein,
with the desire that the Employee shall continue to provide a significant
contribution to the success of the Employer and be responsible for the
day-to-day operations of the Employer;

NOW, THEREFORE, for and in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, it is hereby agreed as
follows:

1. Services.

(a) The Employer hereby employs the Employee as Chairman and Chief
Executive Officer for the term hereof, and the Employee hereby accepts and
agrees to such employment, subject to the provisions of this Agreement. So long
as the Employee is employed as Chairman and Chief Executive Officer, he shall
be elected to the Employer's Board of Directors.

(b) The Employee's duties shall include, without limitation, the
management and supervision of (i) the development, production and distribution
of motion pictures produced or acquired by the Employer or its subsidiaries
consistent with the annual business plans and operating budgets of the Employer
approved by the Boards of Directors of the Employer and TBS and subject to the
ultimate control by R.E.

-4-
<PAGE> 5
Turner, Turner's Successor and the Boards of Directors of the Employer and TBS;
(ii) the exhibition of motion pictures produced or acquired by the Employer by
motion picture theaters; and (iii) other principal business activities of the
Employer and its subsidiaries; and such other duties and services as the
Employer may from time to time reasonably request which are consistent with the
Employee's stature and experience in the motion picture industry. Additionally,
the Employee shall have the right during the term hereof to act as the director
for two (2) full-length theatrical motion pictures produced by the Employer and
having approved production budgets of up to Twenty-five Million Dollars
($25,000,000.00); provided, however, that the development or production of any
motion pictures for which the Employee is to receive credit as a director shall
be approved through the annual budgeting process. The Employee shall receive on
screen director credit for the motion pictures he directs consistent with
industry practice. The Employee shall be the highest ranking officer and
employee of the Employer during the term hereof and report directly to the
Chairman of the Board and President (the "Chairman") of TBS (or if R.E. Turner
is at any time no longer serving in such capacities for TBS and such offices
are not held by the same person, to either the Chairman of the Board or the
President of TBS, at the Employee's option) or any successor in interest to TBS
or person or entity to which this Agreement has been assigned pursuant to
paragraph 11.

-5-
<PAGE> 6
(c) The aforesaid services shall be rendered primarily at the
Employer's offices in New York City, New York and Los Angeles, California and
at such locations therein as the Employer may request consistent with its
reasonable business needs; provided, however, that the Employee acknowledges
that he may be required to perform services in other locations from time to
time. Notwithstanding the foregoing, the Employee shall have the option to base
his employment in either the Los Angeles or New York City offices of the
Employer and shall not be assigned permanently to any location outside the Los
Angeles or New York City metropolitan areas without his consent.

(d) The Employee agrees that he shall faithfully and industriously
perform all of his duties hereunder to the best of his ability and in
accordance with the direction and control of the Chairman and the budgets and
policies established from time to time by the Board of Directors of TBS and the
Board of Directors of the Employer. Consistent with the foregoing, the Employee
shall have general authority with respect to the day-to-day management of the
business of the Employer in the manner described in the preceding sentence.

(e) The Employer shall be entitled to all of the benefits or
profits arising from or incident to all work and services performed by the
Employee on behalf of the Employer hereunder.

(f) The Employee shall be nominated for election as a Common Stock
Director (as such term is defined in the Restated Articles of Incorporation of
TBS) on the TBS Board of Directors

-6-
<PAGE> 7
not later than April 30, 1994 or such later date as shall be mutually agreed
upon by TBS and the Employee, prior to which date the Employee may attend
meetings of the Board of Directors of TBS as an observer. In addition, so long
as (i) this Agreement has not been terminated by the Employer or the Employee
or expired in accordance with paragraph 3, (ii) the Employee has not acted or
failed to act in such a way as to entitle the Employer to terminate this
Agreement for Cause and the Employer has given notice of termination pursuant
to paragraph 14(a), or (iii) the Employee is not subject to termination for
Disability, the Employee shall be nominated for election as a Common Stock
Director at each subsequent annual meeting of TBS. The Employee agrees that if
this Agreement is terminated pursuant to paragraph 14 or 15(b), then the
Employee shall promptly resign from the TBS Board of Directors.

(g) During each calendar year of this Agreement, so long as (i)
this Agreement has not been terminated by the Employer or the Employee or
expired in accordance with paragraph 3, (ii) the Employee has not acted or
failed to act in such a way as to entitle the Employer to terminate this
Agreement for Cause and the Employer has given notice of termination pursuant
to paragraph 14(a), or (iii) the Employee is not subject to termination for
Disability, the Employee shall be appointed to the Executive Committee of TBS
and either the Employee or Michael Lynne (as they may choose) shall be
appointed to the Planning

-7-
<PAGE> 8
Committee of TBS and of the two, the non-member shall be entitled to attend TBS
Planning Committee meetings as an observer.

2. Other Employment. During the term of this Agreement, the
Employee shall devote all of his business time, skill and energies exclusively
to the business of the Employer. In addition, Employee shall not perform
services of any nature for, or permit the use of his name, likeness, voice, or
endorsement by, any individual or entity other than Employer, without the prior
written consent of Employer; provided that in the event that Employer gives
written consent, no such activity shall in any way interfere with the
performance of Employee's services under this Agreement, and provided further
that any compensation of any kind payable or paid to the Employee in connection
therewith shall be the property of the Employer except for any minimum residual
payments required to be paid to the Employee under guild contracts or by
applicable law. Notwithstanding the foregoing, the Employee shall be entitled
to participate in civic, charitable, and professional activities provided such
activities (i) do not interfere with the performance of his services hereunder,
(ii) do not present a conflict of interest or the appearance of a conflict of
interest, or (iii) are not in conflict with the TBS Code of Ethics, as now
existing or as may be hereafter amended by or under authority granted by the
TBS Board of Directors (the "TBS Code of Ethics"). Additionally, subject to
compliance with the TBS Code of Ethics, the Employee

-8-
<PAGE> 9
may serve as a director or officer of businesses organized for profit.

3. Term.

(a) The initial term of this Agreement shall commence on the
Effective Date of the merger of NL Acquisition Co. with and into the Employer
(the "Effective Date") and terminate on December 31, 1998, subject, however, to
prior termination as provided in this Agreement.

(b) If the Employer, in its sole discretion, elects by written
notice to the Employee during the last one hundred eighty (180) days prior to
the expiration of the term hereof to commence negotiations with the Employee to
extend this Agreement, then the Employee shall enter into good faith
negotiations for the extension of this Agreement on mutually agreeable terms.
During the first sixty (60) days of any such negotiation period, the Employee
shall not negotiate with any party other than the Employer.

4. Compensation.

(a) During the term of this Agreement, the Employee shall receive
compensation from the Employer (the "Base Salary") in full payment for all of
his services hereunder and all rights granted herein at the rate of One Million
Five Hundred Thousand Dollars ($1,500,000.00) per annum from the Effective Date
of this Agreement through December 31, 1994; at the rate of One Million Five
Hundred Seventy-five Thousand Dollars ($1,575,000.00) per annum from January 1,
1995 through December 31, 1995; at the rate

-9-
<PAGE> 10
of One Million Six Hundred Fifty-three Thousand Seven Hundred Fifty Dollars
($1,653,750.00) per annum from January 1, 1996 through December 31, 1996; at
the rate of One Million Seven Hundred Thirty-six Thousand Four Hundred Fifty
Dollars ($1,736,450.00) per annum from January 1, 1997 through December 31,
1997; and at the rate of One Million Eight Hundred Twenty-three Thousand Three
Hundred Dollars ($1,823,300.00) per annum from January 1, 1998 through December
31, 1998.

(b) With respect to each calendar year during the term of this
Agreement, the Employee shall be entitled to a cash bonus ranging from
twenty-five percent (25%) to one hundred twenty-five percent (125%) of the Base
Salary in effect for such calendar year set forth in paragraph 4(a). The amount
of the bonus shall be calculated as follows: (i) an amount equal to 25% of such
Base Salary for such calendar year shall be guaranteed and payable without
regard to the operating results of the Employer or TBS (the "Guaranteed
Bonus"); (ii) an amount up to 66% of such Base Salary shall be based upon the
achievement for such calendar year of performance goals for the Employer (the
"Employer Performance Goals") established annually for such calendar year by
mutual agreement of TBS, the Employer and the Stock Option and Compensation
Committee of the TBS Board of Directors (or such other committee as is then
performing such function) (the "Employer Incentive Bonus"); and (iii) an amount
up to 33-1/3% of such Base Salary shall be based upon the achievement for such
calendar year of overall corporate performance goals (the "TBS

-10-
<PAGE> 11
Performance Goals" and together, with the Employer Performance Goals, the
"Performance Goals") for TBS established for purposes of TBS's Turner Incentive
Program (or any successor plan) (the "TBS Incentive Bonus" and, together with
the Employer Incentive Bonus, the "Incentive Bonuses"). Notwithstanding the
foregoing, with respect to the period from the Effective Date through December
31, 1994, the Base Salary, for purposes of calculating the Guaranteed and
Incentive Bonuses, shall be prorated to reflect the partial year (the
"Proration"), provided, however, if the acquisition of Employer by TBS is
accounted for as an acquisition occurring in 1993, such proration shall not be
effected. The Employer Incentive Bonus and the TBS Incentive Bonus shall be
computed independently as set forth in the following chart:
<TABLE>
<CAPTION>
Incentive Bonus

(as a percentage of base salary)
--------------------------------
% of Employer
Performance Goals
and TBS Performance Employer TBS
Goals Achieved Incentive Bonus Incentive Bonus
--------------------------------------------------------------------------------
<S> <C> <C>
less than 90% 0% 0%

90% to 99.99% 16% to 50% 8-1/3% to 25%

100% to 110% 50% to 66% 25% to 33-1/3%
</TABLE>

Each of the Incentive Bonuses will be computed ratably based upon the
percentage of the respective Performance Goals achieved (rounded to the nearest
.01 percent). No additional Incentive Bonus shall be payable if the actual
performance of either the

-11-
<PAGE> 12
Employer or TBS exceeds 110% of the respective Performance Goals. It is
acknowledged that, in the event the Proration is effected, for the period from
January 1, 1994 through January 27, 1994 only, the Employee shall be entitled
to bonus compensation pursuant to paragraph 2.4 of the agreement between the
parties dated April 23, 1990, as amended March 4, 1991 and August 11, 1993, to
be calculated and paid in accordance therewith and prorated for such
twenty-seven days (27) days in 1994.

(c) All compensation hereunder shall be payable in such
installments on such schedule as the Employer may implement from time to time
for general payroll purposes and all payments hereunder are subject to any and
all withholdings and deductions required by applicable law; provided that the
Base Salary in paragraph 4(a) shall be paid at least monthly, and the bonus
compensation in paragraph 4(b) shall be paid at such time and in such manner as
is consistent with the payment of annual bonuses to other senior executives of
TBS but not later than September 30 of the year following the calendar year for
which the bonus is earned.

5. Employee Benefits.

(a) During the term hereof, the Employee shall be entitled to
participate in such TBS retirement, profit sharing and pension plans and life
and other insurance programs, as well as other benefits programs, which are
available to senior executive employees of TBS who are similarly situated,
subject to TBS's policies with respect to all of such benefits or insurance

-12-
<PAGE> 13
programs or plans; provided, however, that except as expressly set forth
herein, the Employer shall not be obligated to institute or maintain any
particular benefit or insurance program or plan or aspect thereof.

(b) The Employee shall be entitled to four (4) weeks vacation per
annum during the term hereof to be scheduled at mutually agreeable times and to
be accrued and taken in accordance with the Employer's policies.

(c) The Employee shall be entitled to a grant of Fifty Thousand
(50,000) shares of the Class B common stock, par value $0.0625 per share, of
TBS on January 28, 1994, which shares will be entitled to registration rights
pursuant to that certain Registration Rights Agreement dated contemporaneously
herewith, attached hereto as Exhibit "A" and incorporated herein by reference.

(d) The parties acknowledge the existence of a stock option
granted to the Employee with respect to the Class B common stock of TBS
pursuant to that certain Stock Option Agreement dated contemporaneously
herewith, attached hereto as Exhibit "B" and incorporated herein by reference.
Such stock option grant shall be pursuant to the TBS 1993 Stock Option Plan,
which shall be substantially similar to the 1988 TBS Stock Option Plan with
regard to provisions governing stock options except to the extent the 1988 Plan
is inconsistent with the Stock Option Agreement and which shall be submitted to
TBS shareholders for approval at the next shareholders meeting following the
Effective Date. The

-13-
<PAGE> 14
Employer will cause a Registration Statement to be filed on the appropriate
form prior to the time any of the stock options become exercisable and use best
efforts to have such Statement declared effective and to maintain it through
the expiration of the option.

(e) The Employer shall pay to the Employee as an automobile
allowance or reimburse him in an amount up to the sum of One Thousand Five
Hundred Dollars ($1,500.00) per month during the term of this Agreement,
inclusive of the costs of garaging and insurance for the Employee's two
automobiles, one in New York and one in Los Angeles. The amounts paid pursuant
to this paragraph 5(e) shall be in lieu of any reimbursement for local travel
and shall be inclusive of all costs incurred for such transportation. The
Employer shall provide to the Employee the services of a car and driver during
the term while the Employee is in New York City, provided that the Employee
shall account for and reasonably document such use of such services as being in
the course of providing services hereunder.

(f) During the term hereof, the Employer shall pay for or
reimburse the Employee for, at the Employer's option, the cost of a life
insurance policy on the Employee's life, for his benefit and of which he or his
spouse is the owner and comparable to the coverage currently in existence, in
the face amount of Three Million Five Hundred Thousand Dollars ($3,500,000.00)
and at a cost not to exceed one hundred fifty percent (150%) of the cost of the
current coverage. The Employer shall have the option to

-14-
<PAGE> 15
select the carrier and arrange to obtain such policy. In addition, the Employee
understands that the Employer intends to purchase a "key-man" life insurance
policy on the life of the Employee. The Employee agrees to fully cooperate with
the Employer in obtaining and maintaining such life insurance policies,
including submitting to physical examinations if required to do so by the
insurance carrier or another entity. The Employee acknowledges that (i) the
Employer will be responsible for any premiums due on any "key-man" life
insurance policy; (ii) all incidents of ownership in any "key-man" life
insurance policy on the Employee are held by the Employer; and (iii) the
Employer is the sole beneficiary of such a policy or will appoint, in its sole
discretion, a beneficiary.

(g) During the term hereof, the Employee shall be entitled to an
allowance for reasonable and necessary living expenses in the amount of Three
Hundred Fifty Dollars ($350.00) net of taxes for each day up to one hundred
(100) days per calendar year he is required by the Employer's business to be in
Los Angeles, provided that for the period from the Effective Date through
December 31, 1994, such number shall be ninety-two (92) days.

(h) During the term hereof, when air travel by the Employee is
necessary to conduct the Employer's business, the Employee shall be entitled to
first class air and hotel accommodations. His spouse may accompany him on such
travel at the Employer's expense provided such expense for spousal travel

-15-
<PAGE> 16
does not exceed Twenty-five Thousand Dollars ($25,000.00) per calendar year,
provided that for the period from the Effective Date through December 31, 1994,
such expense shall not exceed Twenty-three Thousand Eighty-two Dollars
($23,082.00).

(i) During the term hereof, the Employer shall pay for documented
club dues and initiation fees for the Employee up to Seven Thousand Five
Hundred Dollars ($7,500.00) per calendar year, provided that for the period
from the Effective Date through December 31, 1994, such amount shall be Six
Thousand Nine Hundred Twenty-five Dollars ($6,925.00), and increasing according
to the actual costs thereof for subsequent calendar years up to a five percent
(5%) increase each year. If the Employee substitutes new clubs for those of
which he currently is a member or joins new clubs, subject to the cap in the
preceding sentence, the Employer shall pay for initiation fees to the extent
any refund received from the old club does not offset the new fee, provided
that if and when the Employee resigns from such new club, any refunded
initiation fee shall be returned to the Employer.

(j) Subject to the Employer's reasonable approval and the
Employer's company policy, during the term hereof, the Employer shall reimburse
the Employee's reasonable expenses related to the business of the Employer and
incurred while performing his duties under this Agreement and not addressed
elsewhere in this Agreement subject to the Employee's accounting therefor and

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<PAGE> 17
providing to the Employer appropriate vouchers for all such expenses.

(k) It is acknowledged that the Employee has an outstanding
indebtedness to the Employer, as set forth in the Note dated January 31, 1991
made in favor of New Line Cinema Corporation (the "Note"). It is agreed that
(i) the Note shall be amended to provide for an extension of the maturity date
through June 30, 1997 and that the outstanding balance shall be payable in four
(4) equal installments on December 31 of 1994, 1995 and 1996 and June 30, 1997,
and (ii) in the event the Employee sells his California residence or leaves the
employment of the Employer for any reason, whether due to termination by the
Employer or by the Employee, or the expiration of the term of this Agreement
pursuant to paragraph 3 hereof, the entire indebtedness then outstanding under
such Note shall immediately become due and payable and the Employer shall be
entitled to offset any payments due the Employee by the Employer against
amounts due the Employer under the Note.

6. Reports. The Employee agrees to submit to the Employer and
TBS, in writing, such reports related to his services hereunder as they may
reasonably request from time to time or as may be required by company policies.

7. Rights to Works.

(a) All programs, recordings and work product made pursuant to
this Agreement and the Employee's contributions thereto including, without
limitation, any full-length theatrical

-17-
<PAGE> 18
motion pictures directed by the Employee as permitted under paragraph 1(b)
hereof (hereinafter referred to as "Works"), shall belong solely and
exclusively to the Employer. The Employer shall have the perpetual and
exclusive right to use, exhibit, distribute, or license throughout the
universe, any Work or part thereof in which the Employee's services are
utilized by all forms of audio, visual, textual, electronic or other
distribution which are now known or may hereafter exist including, without
limitation, motion picture theaters, broadcast, cablecast, superstation
telecast, DBS, TVRO, MDS, MMDS, STV, pay television, video cassette, compact
disc, laser disc, radio, computer and print, or otherwise exploit such Works
throughout the universe as the Employer in its absolute and unfettered
discretion deems appropriate. All revenues derived by the Employer from the
use, exhibition, distribution, licensing, or other exploitation of such Works
shall be the sole and exclusive property of the Employer. The Employer shall
have the right to adapt, change, revise, delete from, add to and/or rearrange
the Works or any part thereof written or submitted by the Employee, and to
combine the same with other works to any extent, and to change or substitute
the title thereof, and in this connection the Employee hereby waives any
so-called "moral rights" of authors.

(b) To the extent that the Works are considered: (i) contributions
to collective works and/or (ii) as parts or components of audio-visual works,
the parties hereby expressly agree that the Works shall be considered "works
made for hire"

-18-
<PAGE> 19
under the United States Copyright Act of 1976, as amended (17 U.S.C. Section
101 et seq.). In accordance therewith, the sole right of copyright in and to
the Works shall belong exclusively to the Employer in perpetuity. To the extent
that the Works are deemed works other than contributions to collective works
and/or parts or components of audio-visual works, the Employee hereby assigns
to the Employer all rights, title and interest in and to the copyrights of such
Works and all renewals and extensions of the copyrights that may be secured
under the laws now or hereafter in force and effect in the United States of
America or any other country or countries. The Employee shall execute, verify,
acknowledge, deliver and file any and all formal assignments, recordations and
any and all other documents which the Employer may prepare and reasonably call
for to give effect to the provisions of this Agreement.

(c) Nothing in this paragraph 7 shall restrict or qualify the
Employee's ownership of or right to write books or articles during the term of
this Agreement, provided no such activity shall interfere with the Employee's
services hereunder and the Employee obtains prior written approval of the
Employer with regard to the use of any content material relating to the
Employer, TBS or their affiliated entities.

(d) It is understood that the rights granted to the Employer in
this paragraph 7 shall continue in effect after the termination or expiration
of this Agreement to the extent necessary for the Employer's full enjoyment of
such rights.

-19-
<PAGE> 20
8. Use of Name. Likeness or Biography. In connection with the
exercise of the rights granted to the Employer hereunder, including without
limitation the rights granted to the Employer pursuant to paragraph 7 hereof,
the Employee agrees that the Employer shall have the right during the term
hereof plus sixty (60) days thereafter to use the professional name, voice,
likeness and biography of the Employee for publicity purposes, provided that
such use shall not be permitted for any motion pictures not associated with the
Employer or TBS. Notwithstanding the foregoing, the Employer shall have the
right during the term and thereafter without limitation to use the Employee's
professional name, voice, likeness and biography with respect to motion
pictures directed by him in accordance with the custom and practice in the
industry. The Employee agrees that, except as otherwise expressly permitted
herein, he shall not permit the use of his name, voice, likeness, biography
and/or statements to promote or advertise any product, service or organization
during the term hereof without the prior written consent of the Employer.

9. Representations. The Employee hereby represents and warrants
(1) that he has the right to enter into this Agreement with the Employer and to
grant the rights contained herein, (2) that the provisions of this Agreement do
not violate any other contracts or agreements that he has entered into with any
other individual or entity, and (3) that he will comply and, if

-20-
<PAGE> 21
previously employed by the Employer, has complied with all policies of the
Employer and all applicable laws.

10. Unique Nature of Services. It is agreed that the services to
be rendered by the Employee under the terms of this Agreement are of a unique,
unusual, special and extraordinary nature, and of a peculiar value, the loss of
which cannot be reasonably or adequately compensated in damages in any action
at law, and that a breach by the Employee will cause the Employer great and
irreparable injury and damage. It is agreed that the Employer, in addition to
any other remedies, shall be entitled to injunctive and other equitable relief
to prevent a breach of this Agreement by the Employee.

11. Assignment. This Agreement may not be assigned by the
Employee. The Employer may assign this Agreement and/or any or all of its
rights and obligations hereunder to any party acquiring a substantial portion
of its business, or to any entity controlling, controlled by or under common
control with the Employer.

12. Waiver; Cumulative Remedies. A waiver by either party of any
paragraph, term or condition of this Agreement in any instance shall not be
deemed or construed to be a waiver of such paragraph, term or condition for the
future or of any subsequent breach thereof, and any such waiver must be in
writing. All rights and remedies contained in this Agreement are cumulative and
none of them shall be construed so as to limit any other right or remedy of
either party.

-21-
<PAGE> 22
13. Waiver of Mitigation. The Employer waives, releases and
remises any obligation or duty under applicable law on the part of the Employee
to seek or obtain other engagements or employment or to otherwise mitigate any
damages to which the Employee may be entitled to by reason of any termination
of this Agreement whether by the Employer without Cause, by the Employee for
Good Reason or otherwise. The Employee agrees, however, that if the Employee
does obtain other engagements or employment, the total compensation actually
earned by the Employee as consideration for his performance of such engagements
or employment shall reduce any amounts which the Employer would otherwise be
required to pay to the Employee.

14. Termination.

(a) Termination by the Employer. Except as otherwise provided in
this paragraph 14 below, the Employer shall have the right, at its election, to
terminate this Agreement by written notice to the Employee for "Cause" defined
as (i) the willful and continued failure by the Employee to substantially
perform his duties with the Employer (other than any such failure resulting
from his incapacity due to Disability as defined herein); (ii) willful
malfeasance by the Employee in connection with his employment that could
subject the Employer, TBS or any affiliate of TBS to criminal penalties in
excess of Ten Thousand Dollars ($10,000.00) or incarceration of any individual
or that can be reasonably expected to have a material adverse effect on the
Employer or TBS; (iii) the Employee's being convicted of,

-22-
<PAGE> 23
pleading guilty or nolo contendere to, or being indicted for a felony or other
crime involving theft, fraud or moral turpitude; (iv) the engaging by the
Employee in conduct or activities involving moral turpitude materially damaging
to the business or reputation of the Employer, TBS, or any affiliate of TBS;
(v) the commission of fraud or embezzlement by the Employee in the performance
of his obligations hereunder, as determined by the Employer after
investigation, notice of the charge to the Employee, and provision to the
Employee of an opportunity to respond; (vi) the failure or refusal by the
Employee to obey any proper written direction of the Board of Directors of the
Employer or TBS that is not inconsistent with the Employee's authority to
manage the day-to-day operations of the Employer pursuant to this Agreement and
not otherwise inconsistent with the terms of this Agreement; (vii) the
appropriation by the Employee of any corporate opportunity of the Employer,
TBS, or any affiliate of TBS; or (viii) the violation by the Employee of
paragraph 17, 18, or 19 of this Agreement, provided, however, that such
violation shall not constitute Cause if (x) it is de minimis in nature, or (y)
the action was taken in good faith and could reasonably have been expected to
be permitted by this Agreement. Termination for Cause by the Employer shall
occur only if the Employer shall have given written notice to the Employee
specifying the claimed breach, and, if the termination for Cause is pursuant to
paragraph 14(a)(i), (vi), or (viii), the Employee fails to correct (if
correctable) such breach as soon as

-23-
<PAGE> 24
practical thereafter but no later than thirty (30) days after receipt of the
applicable notice (or such longer time as may be reasonably required by the
nature of the claimed breach), provided that there shall be only one notice and
opportunity to correct with respect to paragraph 14(a)(i), and provided further
that even if such breach is corrected, the Employee shall not be relieved of
any liability for damages caused by such breaches. For breaches of the
Agreement, the Employer shall be entitled to all remedies available pursuant to
this Agreement, at law, and in equity.

(b) Termination by the Employee. The Employee shall have the
right, at his election, to terminate this Agreement for "Good Reason" by
written notice to the Employer to that effect. Good Reason shall mean any of
the following (without the Employee's consent): (i) the taking of any action by
the Employer's Board of Directors, TBS, or the Board of Directors of TBS or
their designees in a manner that is inconsistent with their authority as set
forth in this Agreement that has the effect of (x) significantly divesting the
Employee, or materially interfering with the exercise by the Employee, of
authority to manage and supervise the day-to-day operations of the Employer in
accordance with the annual business plans of the Employer approved or modified
by the Boards of Directors of TBS and the Employer, or (y) breaching the
reporting structure set forth in paragraph 1(b); (ii) the failure to nominate
the Employee to the Board of Directors of TBS in accordance with paragraph
1(f); (iii) the

-24-
<PAGE> 25
failure to appoint the Employee to the Executive Committee of TBS or to appoint
the Employee or Michael Lynne to the Planning Committee of TBS in accordance
with paragraph 1(g); (iv) a relocation of the Employer's principal motion
picture production offices to a location outside of the Los Angeles, California
or New York City, New York metropolitan areas that has been approved by the
Employer's Board of Directors, TBS, or the Board of Directors of TBS or their
designees, or the Employer's requiring the Employee to be permanently based
anywhere other than the greater Los Angeles, California or New York City, New
York areas that has been approved by the Employer's Board of Directors, TBS, or
the Board of Directors of TBS or their designees, except for required travel in
connection with the Employer's business; or (v) the failure to pay the Employee
compensation under paragraph 4(a) and 4(b) of this Agreement when due pursuant
to the terms of this Agreement. The Employee may terminate this Agreement only
if the Employee shall have given written notice to the Employer specifying the
claimed Good Reason, and the Employer fails to correct (if correctable) the
claimed breach within thirty (30) days after the receipt of the applicable
notice or such longer time as may be reasonably required by the nature of the
claimed breach (or, if the failure to perform is a failure to pay monies when
due under the terms of this Agreement, within ten (10) days with respect to the
Employer, or an additional five (5) business days with respect to TBS
after written notice to TBS of the Employer's failure to cure). Notwithstanding
anything to the

-25-
<PAGE> 26
contrary in this Agreement, the Employee shall not be entitled to terminate for
Good Reason if (i) the Employee has given written notice to the Employer of the
claimed breach, the Employer is entitled to terminate for Cause, and the
Employer within thirty (30) days of the receipt of notice sends to the Employee
notice of breach under paragraph 14(a), which notice shall serve as notice of
termination (subject to any applicable cure period) under paragraph 14(a), (ii)
the Employer at such time is entitled (and has not otherwise irrevocably waived
in writing its right) to terminate the Employee due to Disability, or (iii)
termination is effected by Death.

(c) Effect of Termination. (i) Upon termination of this Agreement
by reason of the following causes, the following shall be applicable to sums
otherwise due to the Employee, notwithstanding anything to the contrary herein
(except paragraph 13): (x) should this Agreement be terminated by the Employer
for Cause, the Employee shall have no right to any further compensation beyond
the date of termination of the Agreement; (y) should this Agreement expire, or
be terminated by reason of the Employee's Death or Disability, the Employee
shall have no right to any further compensation provided that, in the event of
Death, salary compensation shall accrue and be paid through the date of Death,
and that any bonus payment due for the calendar year in which Death occurred
shall be prorated to reflect only that portion of the year during which the
Employee performed services, and that any bonus payment for the calendar year
in which

-26-
<PAGE> 27
Disability occurred shall be prorated to reflect only that portion of the year
during which the Employee performed services if the Disability equals or
exceeds thirty (30) days of such year but otherwise shall not be subject to
proration in the event of Disability; and (z) should this Agreement be
terminated by the Employer without Cause, provided that such action by Michael
Lynne shall not be effective unless it has been approved by the Employer's
Board of Directors, or by the Employee for Good Reason, the Employee shall be
entitled to (a) the Base Salary for the remainder of the term of this
Agreement, (b) the Guaranteed Bonus and Incentive Bonuses (as if 100% of the
TBS Performance Goals and the Employer Performance Goals had been met for years
subsequent to such termination) due under this Agreement for the remainder of
the term of this Agreement that would have been in effect but for any such
termination, and (c) the options which are vested at the time of termination or
which would thereafter vest, in accordance with the terms of the Stock Option
Agreement attached hereto as Exhibit "B". In all cases of termination, whether
by the Employer or the Employee, or pursuant to the expiration of this
Agreement, the Employer will reimburse the Employee for all expenses with
respect to which the Employee is entitled to reimbursement hereunder through
the date of termination. All payments shall be made for purposes of this
paragraph 14(c) at the time they would have been made if this Agreement had not
been terminated.

-27-
<PAGE> 28
(ii) Any amounts payable to Employee pursuant to the terms
of this paragraph 14(c) shall be subject to offset by the Employer for amounts
due under the Note described in paragraph 5(k); this obligation shall survive
the termination of this Agreement, whether by the Employer or the Employee.

(iii) In the event of termination of this Agreement,
whether by the Employer or the Employee, or pursuant to the expiration of this
Agreement in accordance with paragraph 3 hereof, the Employee shall resign all
offices and directorships held with TBS, the Employer or their respective
subsidiaries and affiliates.

15. Death and Disability.

(a) Death. This Agreement shall immediately terminate upon the
Employee's death.

(b) Disability. In the event that during the term of this
Agreement the Employee becomes unable (as determined by the Board of Directors
of TBS) to substantially perform his services as a result of his permanent or
temporary, total or partial physical or mental disability ("Disability"): (i)
the Base Salary otherwise payable during the Disability Period (as herein
defined) shall nevertheless be payable on the terms set forth herein to the
Employee as a disability benefit ("Disability Benefit") but shall be reduced by
disability insurance proceeds pursuant to any benefit plan of the Employer and
which are actually received by the Employee during the Disability Period with
respect to such Disability; and (ii) the Employer shall not

-28-
<PAGE> 29
have the right (notwithstanding any other provision of this Agreement to the
contrary) to terminate this Agreement due to such Disability prior to the
expiration of the Disability Period. As used herein, the term "Disability
Period" shall mean the period commencing on the first day of the calendar month
following the month during which such Disability occurs and ending on the first
to occur of the following: (i) the expiration of this Agreement; (ii) if the
Disability is continuous throughout the six (6) consecutive months following
the month during which the Disability occurs, then the last day of such sixth
consecutive calendar month; and (iii) if the Disability is intermittent and
shall exist throughout each of any fifteen (15) calendar months following the
month during which the Disability occurs, then the last day of such 15th
calendar month. The Employer shall have the right to terminate this Agreement
at the expiration of the Disability Period if and only if the Disability of the
Employee is then continuing.

16. Code of Ethics. The Employee hereby agrees to adhere to the
TBS Code of Ethics. The TBS Code of Ethics is attached hereto and incorporated
herein as Exhibit "C".

17. Return of Property and Nondisclosure. The Employee agrees that
upon termination or expiration of his employment he will promptly deliver to
the Employer all data, lists, information, memoranda, documents and all other
property belonging to the Employer or containing "Confidential Information" or
"Trade Secrets" of the Employer (both as defined

-29-
<PAGE> 30
below), including, among other things, that which relates to services performed
by the Employee for the Employer, or was created or obtained by the Employee
while performing services for the Employer or by virtue of the Employee's
relationship with the Employer. Except as required in order to perform his
obligations under this Agreement, the Employee shall not, without the express
prior written consent of the Employer, disclose or divulge to any other person
or entity, or use or modify for use, directly or indirectly in any way for any
person or entity any of the Employer's Confidential Information or Trade
Secrets at any time (during or after the Employee's employment) during which
data or information continues to constitute Confidential Information or a Trade
Secret. For purposes of this Agreement, "Confidential Information" of the
Employer shall mean any valuable, competitively sensitive data and information
related to the Employer's business other than Trade Secrets that are not
generally known by or readily available to the Employer's competitors. "Trade
Secrets" shall mean information or data of the Employer, including, but not
limited to, technical or nontechnical data, formulas, patterns, compilations,
programs, devices, methods, techniques, drawings, processes, financial data,
financial plans, product plans, or lists of actual or potential customers or
suppliers, that: (a) derive economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from their disclosure or

-30-
<PAGE> 31
use; and (b) are the subject of efforts that are reasonable under the
circumstances to maintain their secrecy. To the extent that the foregoing
definition is inconsistent with a definition of "trade secret" mandated under
applicable law, the latter definition shall govern for purposes of interpreting
the Employee's obligations under this Agreement. Except for disclosure required
by law or to permit enforcement of this Agreement, the terms of this Agreement
shall be deemed Confidential Information of the Employer and shall not be
discussed or disclosed by Employee with any person other than Employee's
spouse, attorney, or accountant, provided that such discussions or disclosures
shall be conditioned upon the agreement of the person to whom the terms are
disclosed to maintain the confidentiality of such terms.

18. Noncompetition. The Employee agrees that while he is employed
by the Employer, he will not, directly or indirectly, without the prior written
consent of the Employer, provide consultative service with or without pay, own,
manage, operate, join, control, participate in or be connected as a
stockholder, partner or otherwise with any business, individual, partners,
firm, corporation or other entity that is in competition with the Employer, or
any subsidiary or affiliate of the Employer; provided that the Employee shall
be permitted to acquire up to 1% of the outstanding capital stock of any
business or corporation whose securities are traded on a national securities
exchange in the United States or otherwise or in the over-the-counter market

-31-
<PAGE> 32
so long as any such acquisition is made in compliance with the Code of Ethics.

19. Nonsolicitation. The Employee agrees that (subject to
paragraph 1 hereof) while he is employed by the Employer, and for a period of
eighteen (18) months thereafter, he will not, directly or indirectly, without
the prior written consent of the Employer, solicit or attempt to solicit any
employee, consultant, contractor or other personnel of the Employer to
terminate, alter or lessen that party's affiliation with the Employer, TBS or
any affiliate of TBS or to violate the terms of any agreement or understanding
with the Employer.

20. Notices. Any notices required to be given hereunder shall be
in writing and shall be deemed given when personally delivered, telecopied,
telexed or sent certified or registered mail, return receipt requested, or sent
via express air delivery service, to the parties at the addresses set forth
below, or at such other address as a party shall have given notice thereof to
the other party:

Employee:

Mr. Robert Shaye
320 Central Park West
New York, New York 10027

With a copy to:

William Newman, Esq.
Blumenthal & Lynne
488 Madison Avenue
New York, New York 10022

Employer:

New Line Cinema Corporation

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<PAGE> 33

One CNN Center
Box 105366
Atlanta, Georgia 30348-5366
Attention: Steven W. Korn, Esq.

With copies to:

R.E. Turner
Chairman and President
Turner Broadcasting System, Inc.
One CNN Center
Box 105366
Atlanta, Georgia 30348-5366

and

Ginger S. McRae, Esq.
Assistant General Counsel
Turner Broadcasting System, Inc.
One CNN Center
Box 105366
Atlanta, Georgia 30348-5366

21. General.

(a) This Agreement including, but not limited to, the compensation
and benefits payable hereunder, shall be subject to the Employer's company
policies, as the same may be amended from time to time, including policies
concerning sick leave and disability, except to the extent that such policies
conflict with the express terms of this Agreement in which case this Agreement
shall control.

(b) This Agreement shall be governed by and construed under the
laws and decisions of the State of New York with respect to contracts and
agreements which are entirely made and entered into therein. The parties hereto
agree that the state or federal courts in the State of New York shall have
personal jurisdiction over them with respect to, and shall be the

-33-
<PAGE> 34
exclusive forum for the resolution of, any matter or controversy arising from
or with respect to this Agreement. Service of a summons and complaint
concerning any such matter or controversy may, in addition to any other lawful
means, be effected by sending a copy of such summons and complaint by certified
mail to the party to be served as specified in paragraph 20 hereof or at such
other address as the party to be served shall have provided in writing to the
other from time to time in accordance with paragraph 20.

(c) This Agreement contains the entire understanding of the
parties hereto with respect to the subject matter hereof and supersedes all
previous written and oral agreements between the parties with respect to the
subject matter set forth herein, including the agreement between the parties
dated April 23, 1990, as amended March 4, 1991 and August 11, 1993; provided,
however, that the Stock Option Agreement dated April 23, 1990 shall not be
affected by this paragraph 21(c), provided that the number of options granted
thereunder shall not be in excess of the number of options to which he is
entitled thereunder as of August 17, 1993.

(d) This Agreement may not be modified or amended except by a
writing signed by both of the parties hereto, which in the case of the
Employer, has been approved by its Board of Directors.

(e) Any provision of this Agreement that is deemed invalid,
illegal or unenforceable in any jurisdiction shall, as

-34-
<PAGE> 35
to that jurisdiction and subject to this section, be ineffective to the extent
of such invalidity, illegality or unenforceability, without affecting in any
way the remaining provisions hereof in such jurisdiction or rendering that or
any other provision of this Agreement invalid, illegal or unenforceable in any
other jurisdiction. If the covenant should be deemed invalid, illegal or
unenforceable because its scope is considered excessive, such covenant shall be
modified so that the scope of the covenant is reduced only to the minimum
extent necessary to render the modified covenant valid, legal and enforceable.

(f) The following provisions of this Agreement shall survive its
expiration or termination for any reason: paragraphs 5(k)(ii), 7, 8, 9, 13,
14(c), 17, 19, 20 and 21.

(g) This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original, but all of which shall constitute one and
the same agreement.

(h) The headings and titles to the paragraphs of this Agreement
are inserted for convenience only and shall not be deemed a part of or affect
the construction or interpretation of any provisions hereof.

(i) In the event that any action, suit, arbitration proceeding or
other proceeding is instituted concerning or arising out of this Agreement, the
prevailing party shall recover all of such party's costs, including, without
limitation, the court costs and attorneys' fees incurred in each and every such
action, suit or proceeding, including any and all appeals or

-35-
<PAGE> 36
petitions therefrom. As used herein, "attorneys' fees" shall mean the full and
actual costs of any legal services actually rendered in connection with the
matters involved, calculated on the basis of the usual fee charged by the
attorneys performing such services as well as any allocable fees and costs of
in-house counsel, and shall not be limited to "reasonable attorneys' fees" as
required by any statute or rule of court.

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

"Employee" "Employer"
--------- ----------

New Line Cinema Corporation

/s/ Robert Shaye By: /s/ Michael Lynne
---------------- ------------------------
Robert Shaye Its: President
------------------------

-36-

<PAGE> 1
EXHIBIT 11

TURNER BROADCASTING SYSTEM, INC.
Computation of Primary Earnings Per Share
(in thousands, except per share data)

<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31, 1994
-------------------
<S> <C>
Net income applicable to common stock $ 21,157
========

Weighted average number of shares outstanding during the period 204,286

Add: Common equivalent shares issuable assuming conversion of
Class C Convertible Preferred Stock 74,382

Shares issuable upon exercise of stock options 13,811

Subtract: Shares which would have been purchased with proceeds
from exercise of such stock options 11,169
--------

Weighted average number of common stock, common stock
equivalents and converted shares outstanding 281,310
========

Weighted average number of Class A common shares and common
stock equivalents 68,330
========

Weighted average number of Class B common shares and common
stock equivalents 212,980
========

Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.08
========

</TABLE>

<PAGE> 2
EXHIBIT 11 (cont.)

TURNER BROADCASTING SYSTEM, INC.
Computation of Fully-Diluted Earnings Per Share
(in thousands, except per share data)

TWELVE MONTHS ENDED
DECEMBER 31, 1994
-------------------
<S> <C>
Net income applicable to common stock $ 21,157
========

Add: Interest expense on zero coupon subordinated convertible
notes due 2007 16,927
Interest expense on 6.5% convertible notes 1,893

Subtract: Additional income taxes (7,867)
--------

Adjusted net loss applicable to common stock $ 32,110
========

Weighted average number of shares outstanding during the period 281,310

Add: Common equivalent shares issuable assuming conversion of
convertible notes due 2007 7,440

Shares issuable assuming conversion of 6.5%
convertible notes 1,523
--------

Weighted average number of common stock, common stock
equivalents and convertible shares, assuming full dilution 290,273
========

Weighted average number of Class A common shares and common
equivalents and convertible shares, assuming full dilution 68,330
========

Weighted average number of Class B common shares and common
equivalents and convertible shares, assuming full dilution 221,943
========

Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.11
========

</TABLE>

This calculation is submitted in accordance with the rules and regulations of
the Securities and Exchange Commission. Under generally accepted accounting
principles this presentation would not be made because it is anti-dilutive.

<PAGE> 1
EXHIBIT 21
LIST A

TURNER BROADCASTING SYSTEM, INC.
(WHOLLY-OWNED SUBSIDARIES)

1. Atlanta National League Baseball Club, Inc. ("ANLBC")

ANLBC Subs: a. Atlanta Braves, Inc.
b. Braves Productions, Inc.
c. The Stadium Club, Inc.

2. CR Acquisition Co.
3. Cable News Network, Inc. ("CNN")

CNN Subs: a. CNN America, Inc.
b. CNN Business News International, Inc.
c. CNN Germany, Inc.
d. Cable News International, Inc.

4. Castle Rock Entertainment, Inc.
5. Goodwill Games, Inc. ("GWG")

GWG Subs: a. Gamma Productions, Inc.
b. Turner Leasing Company, Inc.

6. HB Holding Co. ("HBC")

HBC Sub: a. Hanna-Barbera Entertainment Co., Inc. ("HBEC")

HBEC Subs: 1. Hanna-Barbera Enterprises, Inc.
2. Hanna-Barbera Home Video, Inc.
3. Hanna-Barbera Music Corp.
4. Hanna-Barbera Productions, Inc. ("HBPI")

HBPI Subs: a. Fil-Cartoons, Inc.
b. Hanna-Barbera B.V.

5. Hanna-Barbera Retail, Inc.
6. R-S Pictures, Inc.
7. Raby-Spar Enterprises, Inc.

<PAGE> 2
7. Hanna-Barbera, Inc. ("HB")

HB Subs: a. Barhanna Music, Inc.
b. Hanna-Barbera Cartoons, Inc. ("HBCI")

HBCI Subs: 1. Bedrock Productions, Inc.
2. The Endangered Film Company, Inc.

c. Hanna-Barbera Character Art Services, Inc.
d. Newbar Music, Inc.
e. Vineland Productions, Inc.

8. Hawks Basketball, Inc.
9. ICC Ventures, Inc.
10. New Line Cinema Corporation ("NL")

NL Subs: a. Alex Entertainment, Inc.
b. Juno Pix, Inc.
c. Katja Motion Picture Corp.
d. Lampline, Inc.
e. Mitchell Entertainment, Inc.
f. New Line Distribution, Inc.
g. New Line Home Video, Inc.
h. New Line International Releasing, Inc.
i. New Line New Media, Inc.
j. New Line Productions, Inc. ("NLP")

NLP Subs: 1. Justine Pictures AVV
2. Venus Productions Ltd.

k. New Line Realty of New York, Inc.
l. New Line Television, Inc.
m. New Line Television International Limited
n. Nicolas Entertainment, Inc.

11. RET Corporation
12. RET Music, Inc.
13. Soviet-American Trading Corporation
14. TBS Properties, Inc.
15. Turner Arena Productions and Sales, Inc. ("TAPS")

TAPS Subs: a. Atlanta Coliseum, Inc.
b. The Omni Promotions Management Company
("OPMC")

OPMC Subs: 1. Techwood Entertainment, Inc.

c. Seats, Inc.

2
<PAGE> 3
16. Turner Broadcasting Sales, Inc.
17. Turner Cable Network Sales, Inc.
18. Turner Entertainment Group, Inc. ("TEG")

TEG Subs: a. Turner Entertainment Networks, Inc. ("TENI")

TENI Subs: 1. The Cartoon Network, Inc.
2. Superstation, Inc. ("SSI")

SSI Sub: a. TBS Productions, Inc. ("TBSP")

TBSP Subs: 1. North Center Productions, Inc.
2. Ten 50 Productions, Inc.

3. Turner Classic Movies, Inc.
4. Turner Entertainment Networks Asia, Inc.
5. Turner Network Television, Inc. ("TNT")

TNT Subs: a. Retro, Inc.
b. Spanish Creek Productions, Inc.
c. TNT Music Publishing, Inc.
d. Techwood Music, Inc.
e. Techwood Productions, Inc.

b. Turner Home Entertainment, Inc. ("THE")

THE Subs: 1. Turner Educational Services, Inc.
2. Turner Pictures Worldwide Distribution, Inc.
3. Turner Publishing, Inc.

c. Turner Entertainment Co. ("TEC")

TEC Subs: 1. Clarington Productions, Inc.
2. Elstree Ltd.
3. Entertainment Film and Tape Services Co.
4. Filmland Data Processing Co.
5. Filmland Production Co.
6. H-B Distribution Co.
7. Premier Record Corporation
8. TEC Bounty Exhibition, Inc.
9. Turner Affiliated Music, Inc.
10. Turner Entertainment Associated, Inc.
11. Turner Entertainment Co. (de Mexico)
12. Turner Entertainment Film Co.
13. Turner Entertainment Manila, Inc.
14. Turner Entertainment Oriental Co., Inc.
15. Turner Entertainment Pictures of Canada
Limited

3
<PAGE> 4
16. Turner Music Inc,.
17. Turner Tape Storage Co.

d. Turner Pictures Worldwide, Inc. ("TPW")

TPW Subs: 1. Colbath, Inc.
2. Original Productions, Inc.
("OPI")

OPI Subs: a. Original
Entertainment,
Inc.
b. Original
Pictures, Inc.

3. Turner Feature Animation, Inc.

19. Turner Home Satellite, Inc.
20. Turner International, Inc. ("TI")

TI Subs: a. Turner Czech, Inc.
b. Turner Entertainment Co. (de Puerto
Rico)
c. Turner International Argentina S.A.
d. Turner International Australia Pty.
Limited
e. Turner International Broadcasting
Russia, Inc.
f. Turner International Canada, Inc.
g. Turner International China, Inc.
h. Turner International do Brasil Ltda.
i. Turner International Far East Limited
j. Turner International Holding Company
k. Turner International India Private
Limited
l. Turner International Japan, Inc.
m. Turner International Mexico, S.A. de
C.V.
n. Turner International Netherlands B.V.
o. Turner International Television
Licensing Co., Inc.
p. Turner International Co. UK Limited
("TMCUKL")

TMCUKL Subs: 1. Castle Rock
International (UK)
Limited
2. Turner Entertainment
Networks International
Limited ("TENIL")

TENIL Subs: a. The Cartoon
Network Limited
b. Turner Network
Television
Limited
3. Turner Home
Entertainment UK Limited
4. Turner International
Advertising Sales
Limited
5. Turner International
Network Sales Limited
("TINSL")

4
<PAGE> 5
TINSL Sub: a. Turner Brodcasting International
Limited

6. Turner International Television
Licensing Limited

7. Turner Pictures Worldwide (UK) Limited

q. Turner Productions S.A.
r. Turner Slovakia, Inc.

21. Turner Marketing, Inc.
22. Turner Music Publishing, Inc.
23. Turner Omni Venture, Inc.
24. Turner Private Networks, Inc. ("TPNI")

TPNI Subs: a. AC Holdings, Inc.
b. COC Holdings, Inc.

25. Turner Program Services, Inc.
26. Turner Reciprocal Advertising Corporation
27. Turner Retail Company
28. Turner Security, Inc.
29. Turner Sports, Inc.
30. Turner Sports Programming, Inc.
31. Turner Teleport, Inc.
32. World Championship Wrestling, Inc.

5
<PAGE> 6
LIST B

TURNER BROADCASTING SYSTEM, INC.

ALPHABETICAL LIST OF SUBSIDIARIES

1. AC Holdings, Inc.
2. Alex Entertainment, Inc.
3. Atlanta Braves, Inc.
4. Atlanta Coliseum, Inc.
5. Atlanta National League Baseball Club, Inc.
6. Barhanna Music, Inc.
7. Bedrock Productions, Inc.
8. Braves Productions, Inc.
9. CNN America, Inc.
10. CNN Business News International, Inc.
11. CNN Germany, Inc.
12. COC Holdings, Inc.
13. CR Acquisition Co.
14. Cable News International, Inc.
15. Cable News Network, Inc.
16. The Cartoon Network, Inc.
17. The Cartoon Network Limited
18. Castle Rock Entertainment, Inc.
19. Castle Rock International (UK) Limited
20. Clarington Productions, Inc.
21. Colbath, Inc.
22. Elstree Ltd.
23. The Endangered Film Company, Inc.
24. Entertainment Film and Tape Services Co.
25. Fil-Cartoons, Inc.
26. Filmland Data Processing Co.
27. Filmland Production Co.
28. Gamma Productions, Inc.
29. Goodwill Games, Inc.
30. H-B Distribution Co.
31. HB Holding Co.
32. Hanna-Barbera B.V.
33. Hanna-Barbera Cartoons, Inc.
34. Hanna-Barbera Character Art Services, Inc.
35. Hanna-Barbera Enterprises, Inc.
36. Hanna-Barbera Entertainment Co., Inc.
37. Hanna-Barbera Home Video, Inc.
<PAGE> 7
38. Hanna-Barbera, Inc.
39. Hanna-Barbera Music Corp.
40. Hanna-Barbera Productions, Inc.
41. Hanna-Barbera Retail, Inc.
42. Hawks Basketball, Inc.
43. ICC Ventures, Inc.
44. Juno Pix, Inc.
45. Justine Pictures AVV
46. Katja Motion Picture Corp.
47. Lampline, Inc.
48. Mitchell Entertainment, Inc.
49. Newbar Music, Inc.
50. New Line Cinema Corporation
51. New Line Distribution, Inc.
52. New Line Home Video, Inc.
53. New Line International Releasing, Inc.
54. New Line New Media, Inc.
55. New Line Productions, Inc.
56. New Line Realty of New York, Inc.
57. New Line Television, Inc.
58. New Line Television International Limited
59. Nicolas Entertainment, Inc.
60. North Center Productions, Inc.
61. The Omni Promotions Management Company
62. Original Entertainment Inc.
63. Original Pictures, Inc.
64. Original Productions, Inc.
65. Premier Record Corporation
66. RET Corporation
67. RET Music, Inc.
68. R-S Pictures, Inc.
69. Raby-Spar Enterprises, Inc.
70. Retro, Inc.
71. Seats, Inc.
72. Soviet-American Trading Corporation
73. Spanish Creek Productions, Inc.
74. The Stadium Club, Inc.
75. Superstation, Inc.
76. TBS Productions, Inc.
77. TBS Properties, Inc.
78. TEC Bounty Exhibition, Inc.
79. TNT Music Publishing, Inc.
80. Techwood Entertainment, Inc.
81. Techwood Music, Inc.
<PAGE> 8
82. Techwood Productions, Inc.
83. Ten 50 Productions, Inc.
84. Turner Affiliated Music, Inc.
85. Turner Arena Productions and Sales, Inc.
86. Turner Broadcasting International Limited
87. Turner Broadcasting Sales, Inc.
88. Turner Cable Network Sales, Inc.
89. Turner Classic Movies, Inc.
90. Turner Czech, Inc.
91. Turner Educational Services, Inc.
92. Turner Entertainment Associated, Inc.
93. Turner Entertainment Co.
94. Turner Entertainment Co. (de Mexico)
95. Turner Entertainment Co. (de Puerto Rico)
96. Turner Entertainment Film Co.
97. Turner Entertainment Group, Inc.
98. Turner Entertainment Manila, Inc.
99. Turner Entertainment Networks Asia, Inc.
100. Turner Entertainment Networks, Inc.
101. Turner Entertainment Networks International Limited
102. Turner Entertainment Oriental Co., Inc.
103. Turner Entertainment Pictures of Canada Limited
104. Turner Feature Animation, Inc.
105. Turner Home Entertainment, Inc.
106. Turner Home Entertainment UK Limited
107. Turner Home Satellite, Inc.
108. Turner International Advertising Sales Limited
109. Turner International Argentina S.A.
110. Turner International Australia Pty. Limited
111. Turner International Broadcasting Russia, Inc.
112. Turner International Canada, Inc.
113. Turner International China, Inc.
114. Turner International do Brasil Ltda.
115. Turner International Far East Limited
116. Turner International Holding Company
117. Turner International, Inc.
118. Turner International India Private Limited
119. Turner International Japan, Inc.
120. Turner International Mexico, S.A. de C.V.
121. Turner International Netherlands B.V.
122. Turner International Network Sales Limited
123. Turner International Television Licensing Co., Inc.
124. Turner International Television Licensing Limited
125. Turner Leasing Company, Inc.
<PAGE> 9
126. Turner Management Co. UK Limited
127. Turner Marketing, Inc.
128. Turner Music, Inc.
129. Turner Music Publishing, Inc.
130. Turner Network Television, Inc.
131. Turner Network Television Limited
132. Turner Omni Venture, Inc.
133. Turner Pictures Worldwide Distribution, Inc.
134. Turner Pictures Worldwide, Inc.
135. Turner Pictures Worldwide (UK) Limited
136. Turner Private Networks, Inc.
137. Turner Productions S.A.
138. Turner Program Services, Inc.
139. Turner Publishing, Inc.
140. Turner Reciprocal Advertising Corporation
141. Turner Retail Company
142. Turner Security, Inc.
143. Turner Slovakia, Inc.
144. Turner Sports, Inc.
145. Turner Sports Programming, Inc.
146. Turner Tape Storage Co.
147. Turner Teleport, Inc.
148. Venus Productions Ltd.
149. Vineland Productions, Inc.
150. World Championship Wrestling, Inc.
<PAGE> 10

LIST C

TURNER BROADCASTING SYSTEM, INC.

AFFILIATED PARTNERSHIPS AND CORPORATIONS

1. Atlanta Hawks, L.P. a Georgia limited partnership
(owns the Atlanta Hawks basketball team)

GENERAL PARTNER: Hawks Management Company (1%)

LIMITED PARTNERS: Hawks Basketball, Inc. (96%)
Turner Advertising Company (2%)
Hawks Management Company (1%)

2. CNN Center Ventures, a Georgia general partnership
(owns the CNN Center complex)

GENERAL PARTNERS: ICC Ventures, Inc. (25%)
Turner Omni Venture, Inc. (75%)

3. Castle Rock Entertainment, a California General Partnership ("CRE")
(film production)

GENERAL PARTNERS: Turner Broadcasting System, Inc. (41.25%)
Castle Rock Entertainment, Inc. (58.75%)

CRE SUBS: a. All Night Productions, Inc.
b. Black Parrot Productions, Inc.
c. Burmat Limited
d. Castle Rock Enterprises, Inc.
e. Castle Rock Pictures, Inc.
f. Castle Rock Productions, Limited
g. G.S.E. Enterprises, Inc.
h. Needful Productions, Ltd.
i. Sam Productions, Ltd.
j. Signal Hill Productions, Inc.
k. Train Wreck Productions, Inc.
<PAGE> 11
4. The Omni Promotions Company Limited, a Georgia limited partnership
(This entity rents out the Omni Coliseum facility for every
event other than Atlanta Hawks basketball games.)

GENERAL PARTNER: The Omni Promotions Management Company (2%)

LIMITED PARTNER: Turner Arena Productions and Sales, Inc. (98%)

<PAGE> 1
EXHIBIT 23

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the incorporation by reference in the Registration
Statements on Forms S-8 (No. 33-24191, No. 33-52173 and No. 33-55539) and in
the Prospectuses constituting part of the Registration Statements on Forms S-3
(No. 33-62218 and No. 33-56559) and Form S-4 (No. 33-51739) of Turner
Broadcasting System, Inc. of our report dated February 15, 1995 appearing in
the 1994 Annual Report to Shareholders which is incorporated in this Annual
Report on Form 10-K. We also consent to the incorporation by reference of our
report on the Financial Statement Schedule, which appears in this Form 10-K.

PRICE WATERHOUSE LLP

Atlanta, Georgia
March 23, 1995

<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K OF
TURNER BROADCASTING SYSTEM, INC. FOR THE FISCAL YEAR ENDED DECEMBER 31,1994,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<MULTIPLIER> 1,000

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 52,895
<SECURITIES> 0
<RECEIVABLES> 702,698
<ALLOWANCES> 31,862
<INVENTORY> 0
<CURRENT-ASSETS> 1,288,402
<PP&E> 563,049
<DEPRECIATION> (254,089)
<TOTAL-ASSETS> 4,072,545
<CURRENT-LIABILITIES> 646,401
<BONDS> 2,519,093
<COMMON> 12,860
0
260,438
<OTHER-SE> 70,433
<TOTAL-LIABILITY-AND-EQUITY> 4,072,545
<SALES> 2,809,125
<TOTAL-REVENUES> 2,809,125
<CGS> 1,768,104
<TOTAL-COSTS> 2,521,483
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 19,125
<INTEREST-EXPENSE> 208,318
<INCOME-PRETAX> 79,324
<INCOME-TAX> 33,171
<INCOME-CONTINUING> 46,153
<DISCONTINUED> 0
<EXTRAORDINARY> 24,996
<CHANGES> 0
<NET-INCOME> 21,157
<EPS-PRIMARY> 0.08
<EPS-DILUTED> 0

</TABLE>