<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-8911
TURNER BROADCASTING SYSTEM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0950695
- ------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One CNN Center
Atlanta, Georgia 30303
- ------------------------------- -----------------------------------
(Address of principal (Zip Code)
executive offices)
(404) 827-1700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1995
- ------------------------- --------------------------------------
Class A Common Stock, par
value $0.0625 68,330,388
Class B Common Stock, par
value $0.0625 137,667,381
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
---------------- -----------------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,808 $ 52,895
Accounts receivable, less allowance of
$34,592 and $31,862
Unaffiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,783 567,404
Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,416 103,432
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462,169 446,355
Installment contracts receivable, less
allowance of $12,723 and $10,661 . . . . . . . . . . . . . . . . . . . 44,338 46,806
Prepaid expense and other current assets . . . . . . . . . . . . . . . . . 89,693 71,510
--------------- --------------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,041,207 1,288,402
Film costs, less current portion . . . . . . . . . . . . . . . . . . . . . 1,908,936 1,893,069
Property and equipment, less accumulated
depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,210 308,960
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . 429,762 409,468
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,590 172,646
--------------- --------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,866,705 $ 4,072,545
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,338 $ 49,036
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,803 249,813
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,930 108,122
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,940 61,376
Participants' share and royalties payable . . . . . . . . . . . . . . . . . 61,721 58,417
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,638 37,338
Film contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 53,885 40,252
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 1,476 1,345
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 43,022 40,702
--------------- --------------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 622,753 646,401
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . 2,286,556 2,517,748
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,410 385,731
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 178,520 178,934
--------------- --------------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 3,484,239 3,728,814
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 382,466 343,731
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 3,866,705 $ 4,072,545
=============== ===============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE> 3
TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------------------- ------------------------------
1995 1994 1995 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenue
Unaffiliated . . . . . . . . . . . . . . . . . . . . . $ 694,634 $ 579,640 $ 1,278,485 $ 1,048,744
Affiliated . . . . . . . . . . . . . . . . . . . . . . 103,252 98,007 229,716 196,207
-------------- -------------- -------------- --------------
797,886 677,647 1,508,201 1,244,951
-------------- -------------- -------------- --------------
Cost of operations . . . . . . . . . . . . . . . . . . . . 480,978 432,975 884,720 800,088
Selling, general and administrative . . . . . . . . . . . . 206,864 175,815 403,040 331,446
Gain on sale of equity investment . . . . . . . . . . . . . - (21,746) - (21,746)
Costs of accounts receivable
securitization program . . . . . . . . . . . . . . . . 3,258 - 3,258 -
Depreciation of property and equipment and
amortization of goodwill and other
intangible assets . . . . . . . . . . . . . . . . . . 20,457 14,815 36,834 27,109
Interest expense, net of interest income . . . . . . . . . 46,576 53,633 97,284 105,376
Equity in loss of unconsolidated entities . . . . . . . . . 2,668 1,546 7,737 3,863
-------------- -------------- -------------- --------------
760,801 657,038 1,432,873 1,246,136
-------------- -------------- -------------- --------------
Income (loss) before provision
(benefit)for income taxes . . . . . . . . . . . 37,085 20,609 75,328 (1,185)
Provision (benefit) for income taxes . . . . . . . . . . . 15,385 7,690 31,638 (480)
-------------- -------------- -------------- -------------
Net income (loss) . . . . . . . . . . . . . . . . . $ 21,700 $ 12,919 $ 43,690 $ (705)
============== ============== ============== =============
Earnings (loss) per common share and
common stock equivalent
Net income (loss) . . . . . . . . . . . . . . $ 0.08 $ 0.05 $ 0.15 $ 0.00
============== ============== ============== =============
Weighted average number of common shares
outstanding, including conversion of
common stock equivalents,
when applicable . . . . . . . . . . . . . . . . . . . 283,030 282,626 282,688 202,847
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
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TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------------
1995 1994
------------- -------------
<S> <C>
Cash provided by operations before changes
in film costs and liabilities, net . . . . . . . . . . . . . . . . . . . . . $ 343,613 $ 30,527
Changes in film costs and liabilities, net
Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . . . 45,328 40,390
Produced programming . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,505) (36,412)
Licensed program and distribution rights . . . . . . . . . . . . . . . . . (9,772) (366)
------------ ------------
Net cash provided by operations . . . . . . . . . . . . . . . . . . . . . . . . . 314,664 34,139
------------ ------------
Cash provided by (used for) investing activities
Sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . - 107,978
Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . 6,180 -
Acquisitions and advances to unconsolidated entities . . . . . . . . . . . . (7,051) (144,882)
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . (50,245) (55,578)
------------- ------------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (51,116) (92,482)
------------- ------------
Cash provided by (used for) financing activities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 599,610
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (255,224) (575,623)
Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (9,809) (4,901)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . 2,398 868
------------ ------------
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . (247,635) 19,954
------------- ------------
Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 15,913 (38,389)
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 52,895 162,858
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 68,808 $ 124,469
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND
FINANCING ACTIVITIES:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,809 $ 13,506
Net interest paid, including interest
capitalized of $8,503 and $6,914 . . . . . . . . . . . . . . . . . . . . . . 98,338 80,389
Dividends declared but unpaid . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,901
On January 28, 1994, the Company completed the merger with New Line Cinema
Corporation as follows:
Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . $ 695,400
Less: common stock issued or issuable . . . . . . . . . . . . . . . . . . . . . . 406,700
cash paid for debt and other acquisition costs . . . . . . . . . . . . . . 139,600
------------
Liabilities assumed, including Convertible Debentures . . . . . . . . . . . . . . $ 149,100
============
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
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TURNER BROADCASTING SYSTEM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. PREPARATION OF INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have
been prepared by Turner Broadcasting System, Inc. (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of such financial statements. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
management believes that the disclosures are adequate to make the information
presented not misleading. For further information, reference is made to the
consolidated financial statements and the notes thereto incorporated by
reference in the Company's Form 10-K for the year ended December 31, 1994.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
NOTE 2. FILM COSTS
The following table sets forth the components of unamortized film
costs (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1995 1994
----------------- -----------------
<S> <C> <C>
Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . $ 1,057,249 $ 1,102,563
Produced programming
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,393 302,559
Completed and not released . . . . . . . . . . . . . . . . . . . . . 50,805 40,021
In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,700 405,255
Episodic television . . . . . . . . . . . . . . . . . . . . . . . . 115,167 107,543
Licensed program and distribution rights . . . . . . . . . . . . . . . 277,888 257,796
Prepaid licensed program rights . . . . . . . . . . . . . . . . . . . 119,903 123,687
----------------- -----------------
2,371,105 2,339,424
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 462,169 446,355
----------------- -----------------
$ 1,908,936 $ 1,893,069
================= =================
</TABLE>
Episodic television includes serial television program costs. Prepaid
licensed program rights represent licensed program rights for which payments
have been made but the programming is not currently available for use. As
these programs become available for use they are reclassified to licensed
program rights.
On the basis of the Company's anticipated total gross revenue
estimates, over 87% of released and episodic television produced programming
costs at June 30, 1995 will be amortized within the three-year period ending
June 30, 1998.
Amortization of film costs included in Cost of Operations is composed
of the following (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
----------------------------- ----------------------------
1995 1994 1995 1994
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Purchased program rights . . . . . . . . . . . . . . . $ 22,583 $ 21,962 $ 44,946 $ 44,339
Produced programming . . . . . . . . . . . . . . . . . 219,419 209,945 380,804 375,757
Licensed program and distribution
rights . . . . . . . . . . . . . . . . . . . . . . 23,440 19,468 50,520 39,181
Participants' share and royalties . . . . . . . . . . . 19,330 8,060 37,440 23,399
Non-cash amortization of certain
acquisition purchase adjustments . . . . . . . . . 499 794 3,292 1,758
------------ ------------ ----------- -------------
$ 285,271 $ 260,229 $ 517,002 $ 484,434
============ ============ =========== =============
</TABLE>
5
<PAGE> 6
NOTE 3. EARNINGS (LOSS) PER COMMON SHARE AND COMMON STOCK EQUIVALENT
Net income (loss) per common share and common stock 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 the applicable periods in 1995 and 1994.
Common stock equivalents are principally the incremental shares associated with
the Class C Convertible Preferred Stock (the "Class C Preferred Stock") and the
outstanding stock options. For the six months ended June 30, 1994, no common
stock equivalents are included in the calculation of primary earnings per
share, due to their anti-dilutive effect. 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 and the convertible subordinated debentures of a
wholly-owned subsidiary are excluded from the fully-diluted calculations of net
income (loss) per common share for the three-month and six-month periods ended
June 30, 1995, and 1994 due to their anti-dilutive effect. The difference
between the primary and fully-diluted earnings per share is not significant.
NOTE 4. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
---------------- --------------
<S> <C> <C>
Bank credit facilities . . . . . . . . . . . . . . . . . . . . $ 1,250,000 $ 1,490,000
8 3/8% Senior Notes . . . . . . . . . . . . . . . . . . . . . 297,411 297,381
7.4% Senior Notes . . . . . . . . . . . . . . . . . . . . . . 249,652 249,637
8.4% Senior Debentures . . . . . . . . . . . . . . . . . . . . 199,846 199,845
Zero coupon subordinated convertible notes . . . . . . . . . . 254,469 245,569
Convertible subordinated debentures of
a wholly-owned subsidiary . . . . . . . . . . . . . . . . . . 29,075 29,075
Obligations under capital leases . . . . . . . . . . . . . . . 6,215 6,200
Other long-term debt . . . . . . . . . . . . . . . . . . . . . 1,364 1,386
---------------- --------------
2,288,032 2,519,093
Less current portion . . . . . . . . . . . . . . . . . . . . . 1,476 1,345
---------------- --------------
$ 2,286,556 $ 2,517,748
================ ==============
</TABLE>
6
<PAGE> 7
NOTE 5. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following components (in
thousands, except share data):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1995 1994
--------------- ---------------
<S> <C> <C>
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 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 137,667,381 and 137,424,549
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,604 8,589
Capital in excess of par value . . . . . . . . . . . . . . . . 1,078,156 1,073,317
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (969,003) (1,002,884)
--------------- ---------------
Total stockholders' equity . . . . . . . . . . . . . . . . $ 382,466 $ 343,731
=============== ===============
</TABLE>
On March 1, 1995, and June 1, 1995, the Board of Directors declared a
cash dividend 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
record date. In addition, holders of the Company's outstanding Class C
Preferred Stock were entitled to an equivalent cash dividend of $0.105 for each
share held on the record date based on the number of shares of Class B Common
Stock which would be issued upon conversion of each share of Class C Preferred
Stock. Cash dividends of $4,902,000 and $4,907,000 were paid on March 30, 1995
and June 30, 1995, respectively, to shareholders of record at the close of
business on March 15, 1995 and June 15, 1995, respectively.
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 such covenants limits the maximum aggregate amount of
dividends permitted to be paid annually to such holders to $30,000,000.
NOTE 6. ACQUISITION
The Company and New Line Cinema Corporation ("New Line"), a motion
picture production and distribution company, 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 shares of Class B Common Stock issuable pursuant to the
Merger is approximately 21,300,000 shares, valued at approximately
$442,000,000. Cash will be distributed in lieu of any fractional shares. At
June 30, 1995 approximately 16,500,000 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.
Additionally, the Company assumed and incurred liabilities of approximately
$149,100,000 and paid debt and certain other
7
<PAGE> 8
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"). The
Convertible Debentures are convertible at the option of the holders 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
$330,000,000 were recognized in the transaction, and are being amortized using
a straight-line basis over periods not to exceed 40 years. The pro forma effect
of the Merger for the six months ended June 30, 1994 is not significant.
NOTE 7. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In May 1995, the Company entered into an agreement with a financial
institution whereby the Company can sell on an ongoing basis up to $300,000,000
of an undivided percentage ownership interest in a designated pool of domestic
cable and advertising accounts receivable. The initial sale generated proceeds
of approximately $236,000,000 that were used to repay amounts outstanding under
the Company's unsecured revolving credit facilities. As collections reduce the
accounts receivable balance in the pool, the Company may sell participating
interests in new receivables up to the maximum allowable under the program.
The sales of accounts receivable under this program have reduced the accounts
receivable balance in the consolidated condensed balance sheet and the proceeds
have been included as a source of cash provided by operations in the
consolidated condensed statement of cash flows. Under the terms of the
agreement, the difference between the cash proceeds and the undivided
percentage ownership interest sold in the designated pool of domestic cable and
advertising accounts receivable consists of receivables that have been
designated as reserves principally for any potential credit costs that may be
incurred under the program. However, these costs are not expected to exceed
the full amount of the allowance for doubtful accounts which has been retained
in the consolidated condensed balance sheet of the Company, as the Company
expects to experience substantially the same risk of credit loss as if the
receivables had not been sold. The ongoing costs of the program are largely
based on the purchaser's level of investment and cost of funds. The costs of
the program are anticipated to be less than those the Company would have
otherwise incurred under the Company's unsecured revolving credit facilities.
Under the agreement, which expires in May 1996, the Company performs collection
and administrative responsibilities related to the receivables sold as agent
for the purchaser.
As of June 30, 1995, the Company had sold an undivided interest in
this designated pool of domestic cable and advertising accounts receivable that
aggregated $300,000,000. The estimated total cost of the program for the sale
of accounts receivable during the quarter ended June 30, 1995, approximated
$3,000,000 and is reflected as a reduction of operating profit in the
consolidated condensed statements of operations.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash provided by operations after changes in film costs and associated
liabilities for the six months ended June 30, 1995 aggregated $315 million,
including cash interest payments, net of cash interest received, of $98 million
and a net change in film costs and liabilities of $29 million. Also included
in cash provided by operations was $236 million which represents the initial
proceeds from the accounts receivable securitization program discussed below.
Other primary uses of cash during the period included repayments of amounts
outstanding under the unsecured revolving credit facilities of $255 million and
additions to property and equipment of $50 million.
Included in the net change in film costs were $328 million utilized by
the Company for original entertainment and sports programming (including $178
million for theatrical film productions, excluding promotional and advertising
costs).
In May 1995, the Company entered into an agreement with a financial
institution whereby the Company can sell on an ongoing basis up to $300 million
of an undivided percentage ownership interest in a designated pool of domestic
cable and advertising accounts receivable. As of June 30, 1995, the Company
had sold an undivided interest in this designated pool of its domestic cable
and advertising accounts receivable that aggregated $300 million. The initial
proceeds from the sale, $236 million, were used to repay amounts outstanding
under the Company's unsecured revolving credit facilities. The Company has
recognized costs of $3 million in connection with this accounts receivable
securitization program. The ongoing costs of the program are anticipated to
be less than those the Company would have otherwise incurred under the bank
credit facilities. See Note 7 of Notes to Consolidated Condensed Financial
Statements.
See the Consolidated Condensed Statements of Cash Flows for additional
details regarding sources and uses of cash and Notes 4 and 7 of Notes to
Consolidated Condensed Financial Statements for additional information about
the Company's indebtedness and the accounts receivable securitization program.
CREDIT FACILITIES AND FINANCING ACTIVITIES
The Company had approximately $2.3 billion of outstanding indebtedness at
June 30, 1995, of which $1.3 billion was outstanding under unsecured revolving
credit facilities with banks.
CAPITAL RESOURCES AND COMMITMENTS
During the next 12 months, the Company anticipates making cash
expenditures of approximately $294 million for sports programming, primarily
rights fees, approximately $974 million for original entertainment programming
(excluding promotional and advertising costs) and approximately $144 million
for licensed programming. Also, during the next 12 months, the Company expects
to make total expenditures of approximately $117 million for additional or
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<PAGE> 10
replacement property and equipment. Of the anticipated programming and capital
expenditures described above, firm commitments exist for approximately $611
million. Other capital resource commitments consist primarily of lease
obligations, some of which are contingent on revenues derived from usage.
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 and
film suppliers and additional borrowings.
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 VS. THREE MONTHS ENDED
JUNE 30, 1994
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue
Entertainment
Networks $ 309,455 $ 265,286
Production & Distribution 257,737 208,661
Intrasegment revenue elimination (12,392) (15,346)
-------------- --------------
Total Entertainment 554,800 458,601
News 196,901 163,168
Other 54,712 67,118
Intersegment revenue elimination (8,527) (11,240)
-------------- --------------
$ 797,886 $ 677,647
============== ==============
Operating profit (loss)
Entertainment
Networks $ 64,952 $ 34,751
Production & Distribution (25,379) (31,107)
Intrasegment elimination 5,212 4,684
-------------- --------------
Total Entertainment 44,785 8,328
News 70,208 54,756
Other (25,406) (9,042)
Costs of accounts receivable
securitization program (3,258) -
Gain on sale of equity investment - 21,746
Equity in loss of
unconsolidated entities (2,668) (1,546)
-------------- --------------
$ 83,661 $ 74,242
============== ==============
</TABLE>
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased $96 million, or 21%, from $459
million to $555 million. In the networks, advertising revenue increased $27
million, or 14%, due to an increase in the amount charged per thousand homes
and higher viewership, while subscription revenue increased $20 million, or
30%, due to higher rates and an increase in subscribers. The Company's
production and distribution companies contributed the remaining revenue
increase, primarily through favorable box office results for theatrical film
releases, which
10
<PAGE> 11
increased $31 million, or 87%, and domestic and international syndication
revenues, which increased $16 million, or 35%.
Operating profit for the Entertainment Segment increased $36 million
over the second quarter of 1994, $24 million of which related to losses
associated with the Goodwill Games. Of the remaining increase in operating
profit, $10 million was due to increased entertainment network revenues, offset
primarily by increased sports programming costs relating to NBA telecasts. The
production and distribution companies accounted for the remaining increase,
principally due to favorable results from theatrical film releases and
syndication revenue, as noted above.
NEWS SEGMENT
News Segment revenue rose $34 million, or 21%, from $163 million to
$197 million. The increase was due primarily to a $16 million, or 22%,
increase in domestic advertising revenue associated with higher viewership
levels, and a $7 million, or 13%, increase in domestic subscription revenue due
primarily to higher rates and an increase in subscribers. The remaining
increase in overall revenue was generated by CNN International, where second
quarter revenue rose $7 million, or 25%, from $28 million to $35 million.
As a result of the revenue advances which outpaced cost increases,
operating profit for the News Segment increased $15 million, or 28%.
OTHER SEGMENT
Revenue for the segment decreased $12 million, or 18%, from $67
million to $55 million. The Atlanta Braves played 18 fewer games in the second
quarter of 1995 versus the same quarter last year as a result of the
strike-shortened season, which accounted for the majority of the revenue
decrease. Overall, operating losses for the segment rose $16 million, $10
million of which related to the results of the Braves, with the remainder due
primarily to increases in general corporate costs, in line with overall Company
growth. The strike and abbreviated season are not expected to have a
significant continuing impact on the Company's operating results in 1995.
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION
Operating losses increased $1 million due primarily to a decrease in
Hawks' ticket revenue associated with participation in fewer playoff games and
lower regular-season attendance levels in comparison to the prior year.
The collective bargaining agreement between the National Basketball
Association ("NBA"), of which the Atlanta Hawks are a member, and the National
Basketball Players' Association ("NBPA"), of which the Atlanta Hawks players
are members, expired at the conclusion of the 1993-1994 season. For the
1994-1995 NBA season, the NBA and NBPA operated under a one-year extension of
the collective bargaining agreement. At the conclusion of the 1994-1995
season, a tentative agreement was reached between the NBA and negotiators from
the NBPA. The NBA owners unanimously ratified the agreement, however, certain
NBPA members dissatisfied with the proposed agreement petitioned successfully
for a decertification election to the National Labor Relations Board ("NLRB"),
which will hold a secret ballot vote on August 30 and September 7, 1995. On
August 8, 1995, negotiators
11
<PAGE> 12
from the NBPA and NBA reached a new tentative agreement which must be ratified
by the NBA's Board of Governors and the players. The decertification election
will now serve as a referendum on the August 8th agreement. The NBA remains in
a lockout situation until such ratification. Any delay in or cancellation of
the season resulting from the lockout is not expected to have a significant
impact on the operations of the Company.
In June 1994, the Company sold its equity interest in RHI
Entertainment for approximately $108 million in cash and recognized a pre-tax
gain of approximately $22 million.
Consolidated depreciation and amortization increased approximately
$6 million as a result of increased levels of property and equipment required
to support the Company's growth.
As a result of the information discussed above, the Company reported
net income of $22 million in the second quarter of 1995 ($0.08 net income per
common share and common share equivalent). This compares to a net income of
$13 million in the second quarter of 1994 ($0.05 net income per common share
and common share equivalent).
12
<PAGE> 13
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 VS. SIX MONTHS ENDED
JUNE 30, 1994
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1994
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue
Entertainment
Networks $ 552,251 $ 462,723
Production & Distribution 544,383 419,511
Intrasegment revenue elimination (44,215) (30,214)
-------------- --------------
Total Entertainment 1,052,419 852,020
News 379,979 313,956
Other 88,475 93,110
Intersegment revenue elimination (12,672) (14,135)
-------------- --------------
$ 1,508,201 $ 1,244,951
============== ==============
Operating profit (loss)
Entertainment
Networks $ 108,104 $ 33,657
Production & Distribution (12,590) (34,273)
Intrasegment elimination (3,370) 8,754
-------------- --------------
Total Entertainment 92,144 8,138
News 137,631 103,953
Other (46,168) (25,783)
Costs of accounts receivable
securitization program (3,258) -
Gain on sale of equity investment - 21,746
Equity in loss of
unconsolidated entities (7,737) (3,863)
-------------- --------------
$ 172,612 $ 104,191
============== ==============
</TABLE>
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased $200 million, or 24%, from $852
million to $1.05 billion. Network advertising revenue increased $46 million,
or 15%, to $360 million, due to an increase in the amount charged per thousand
homes and higher viewership. Subscription revenue also increased, rising $40
million, or 31%, to $170 million, due to higher rates and an increase in
subscribers. The Company's production and distribution companies contributed
revenue increases, primarily through favorable box office results for
theatrical film releases, which increased $49 million, or 69%, to $120 million.
Improved home video distribution, which increased $43 million, or $27%, to $204
million, and domestic and international syndication revenue which increased $13
million, or 11%, to $135 million, also came principally from the production and
distribution companies, and is primarily associated with recent theatrical film
productions.
Operating profit for the Entertainment Segment increased $84 million
over the first six months of 1994, from $8 million to $92 million, $28 million
of which related to losses associated with the Goodwill Games. Additionally,
increased operating profits from the entertainment networks of $49 million were
primarily due to reduced sports programming costs as compared to the same
period in the previous year when the 1994 Winter Olympics were telecast, as
well as the
13
<PAGE> 14
advertising and subscription revenue advances mentioned above. The remaining
increase of $7 million in operating profits relates to improved results from
the production and distribution companies primarily due to favorable results
from theatrical film releases, and home video and syndication, as noted above.
NEWS SEGMENT
News Segment revenue rose $66 million, or 21%, from $314 million to
$380 million. The increase was due primarily to a $34 million, or 25%,
increase in domestic advertising revenue associated with higher viewership
levels, and a $13 million, or 12%, increase in domestic subscription revenue
due primarily to higher rates and an increase in subscribers. The remaining
increase in overall revenue was primarily generated by CNN International, where
revenue rose $15 million, or 30%, from $50 million to $65 million.
As a result of the revenue advances which outpaced costs increases,
operating profit for the News Segment increased $34 million, or 32%.
OTHER SEGMENT
Revenue for the segment decreased $5 million, or 5%, from $93 million
to $88 million. The Atlanta Braves played 18 fewer games in the first half of
1995 versus the same period in the prior year as a result of the
strike-shortened season, contributing to a decrease in revenue of $16 million
which was offset by increased revenues at World Championship Wrestling,
associated primarily with pay-per-view events. Overall, operating losses for
the segment increased $20 million, $10 million of which related to the results
of the Braves, with the remainder due primarily to increases in general
corporate costs, in line with overall Company growth. The strike and
abbreviated season are not expected to have a significant continuing impact on
the Company's operating results in 1995.
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION
Operating losses increased $4 million due primarily to a decrease in
Hawks' ticket revenue associated with participation in fewer playoff games and
lower regular-season attendance levels in comparison to the prior year.
The collective bargaining agreement between the NBA, of which the
Atlanta Hawks are a member, and the NBPA, of which the Atlanta Hawks players
are members, expired at the conclusion of the 1993-1994 season. For the
1994-1995 NBA season, the NBA and NBPA operated under a one-year extension of
the collective bargaining agreement. At the conclusion of the 1994-1995
season, a tentative agreement was reached between the NBA and negotiators from
the NBPA. The NBA owners unanimously ratified the agreement, however certain
NBPA members dissatisfied with the proposed agreement petitioned successfully
for a decertification election to the NLRB, which will hold a secret ballot
vote on August 30 and September 7, 1995. On August 8, 1995, negotiators from
the NBPA and NBA reached a new tentative agreement which must be ratified by
the NBA's Board of Governors and the players. The decertification election
will now serve as a referendum on the August 8th agreement. The NBA remains in
a lockout situation until such ratification. Any delay in or cancellation of
the season resulting from the lockout is not expected to have a material impact
on the operations of the Company.
14
<PAGE> 15
In June 1994, the Company sold its equity interest in RHI Entertainment
for approximately $108 million in cash and recognized a pre-tax gain of
approximately $22 million.
Consolidated depreciation and amortization increased approximately $10
million as a result of increased levels of property and equipment required to
support the Company's growth.
As a result of the information discussed above, the Company reported
net income of $44 million for the six months ended June 30, 1995 ($0.15 net
income per common share and common share equivalent). This compares to a net
loss of $1 million for the six months ended June 30, 1994 ($0.00 net loss per
common share).
15
<PAGE> 16
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Turner Broadcasting System, Inc. v. Federal Communications Commission and The
United States of America
As last updated in the Company's Form 10-K for the year ended December
31, 1994, 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. The
Company's complaint alleges that these provisions violate the First Amendment
of the United States Constitution. 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 27, 1994, the
United States Supreme Court vacated the District Court's ruling and remanded
the case for further proceedings. The Company is pursuing its claims. On July
17, 1995, the District Court heard oral arguments on cross-motions for summary
judgment.
16
<PAGE> 17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on June 9,
1995. At the annual meeting, the shareholders voted on the following matters:
(i) the election of fifteen directors; (ii) a proposal to ratify the selection
of Price Waterhouse LLP as the Company's independent accountants; (iii) a
proposal to approve an amendment to the Turner Broadcasting System, Inc. 1993
Stock Option and Equity-Based Award Plan; and (iv) a shareholder proposal
concerning limiting the location of the annual meeting of shareholders to
within the United States. The results of the votes were as follows:
Proposal No. I - Election of Directors
Election of Eight Common Stock Directors:
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
--- -------------
<S> <C> <C> <C> <C>
R.E. Turner 153,081,754 votes 95,231 votes
------------- -------------
Henry L. Aaron 153,076,226 votes 100,759 votes
------------- -------------
W. Thomas Johnson 153,111,812 votes 95,173 votes
------------- -------------
Rubye M. Lucas 153,078,208 votes 98,787 votes
------------- -------------
Terence F. McGuirk 153,081,822 votes 95,163 votes
------------- -------------
Brian L. Roberts 153,080,944 votes 96,041 votes
------------- -------------
Scott M. Sassa 153,081,622 votes 95,363 votes
------------- -------------
Robert Shaye 153,081,822 votes 95,163 votes
------------- -------------
</TABLE>
Election of Seven Class C Directors:
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
--- -------------
<S> <C> <C> <C> <C>
Peter R. Barton 14,876,371 votes 0 votes
-------------- --------------
Joseph J. Collins 14,876,371 votes 0 votes
-------------- --------------
Michael J. Fuchs 14,876,371 votes 0 votes
-------------- --------------
Gerald M. Levin 14,876,371 votes 0 votes
-------------- --------------
John C. Malone 14,876,371 votes 0 votes
-------------- --------------
Timothy P. Neher 14,876,371 votes 0 votes
-------------- --------------
Fred A. Vierra 14,876,371 votes 0 votes
-------------- --------------
</TABLE>
Proposal No. II - Ratification of selection of
Price Waterhouse LLP as the Company's
independent accountants for the fiscal year
ending December 31, 1995:
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Preferred Total
Votes Votes Votes Votes
----------- ---------- ------------- -----
<S> <C> <C> <C> <C>
FOR: 130,063,086 23,076,263 14,876,371 168,015,720
----------- ---------- ------------ -----------
AGAINST: 20,328 2,475 0 22,803
----------- ---------- ------------ -----------
ABSTAIN: 12,166 2,667 0 14,833
----------- ---------- ------------ -----------
</TABLE>
17
<PAGE> 18
Proposal No. III - Approval of amendment to the
Turner Broadcasting System, Inc. 1993 Stock
Option and Equity-Based Award Plan to increase
the number of shares of the Company's Class B
Common Stock as to which stock options and other
equity-based awards may be granted:
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Preferred Total
Votes Votes Votes Votes
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
FOR: 123,480,110 18,486,832 14,876,371 156,843,313
----------- ---------- ----------- -----------
AGAINST: 1,805,862 3,528,930 0 5,334,792
----------- ---------- ----------- -----------
ABSTAIN: 170,716 374,037 0 544,753
----------- ---------- ----------- -----------
</TABLE>
Proposal No. IV - Shareholder proposal
concerning limiting the location of the annual
meeting of shareholders to within the United
States:
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Preferred Total
Votes Votes Votes Votes
----------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
FOR: 1,286,572 391,406 0 1,677,978
----------- ---------- ----------- -----------
AGAINST: 123,828,090 21,659,545 14,876,371 160,364,006
----------- ---------- ----------- -----------
ABSTAIN: 342,026 338,848 0 680,874
----------- ---------- ----------- -----------
</TABLE>
18
<PAGE> 19
ITEM 5. OTHER INFORMATION
REGULATION
On October 5, 1992, the 1992 Act became law. The Federal
Communications Commission (the "FCC" or the "Commission") is charged with
implementation of the 1992 Act.
RATE REGULATION
Section 623 of the Communications Act of 1934, 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. 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 implementing 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 until 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 June 5, 1995, the United States Court of Appeals for the District
of Columbia upheld the FCC's implementing regulations against challenge on
constitutional, statutory and administrative law grounds.
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
19
<PAGE> 20
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.
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 mark-up 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 year. Cable operators
electing to use the 20 cents 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
such 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. The Company cannot
predict the ultimate outcome of the litigation.
20
<PAGE> 21
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
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 or
retransmission consent. The retransmission consent provisions of the 1992 Act
became effective on October 5, 1993.
On March 11, 1993, the FCC 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 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 or that was entered into on or before June 1, 1990. While the
Company cannot predict the regulations' full effect on its operations, such
regulations may affect the rates charged by the Company's cable programming
services to its customers and could affect the terms and conditions of
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 litigation.
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 provide exclusive rights as a
condition of carriage. On October 22, 1993, the Commission issued regulations
implementing this provision. The Company cannot at this time predict the
effect of this provision on its operations.
21
<PAGE> 22
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 reach through 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 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 implementation of that provision pending
judicial review of its constitutionality. On April 5, 1995, the FCC denied the
petitions for reconsideration. The Company cannot at this time predict the
effect of this provision or 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 litigation.
SPORTS MIGRATION
The 1992 Act directed 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 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.
22
<PAGE> 23
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.33.1 Amendment No. 1 to the Turner Broadcasting System, Inc. 1993
Stock Option and Equity-Based Award Plan.
10.34.1 Amendment No. 2, dated as of May 24, 1995, by and between the
Company and W. Thomas Johnson, to the Employment Agreement,
dated as of December 20, 1993.
10.35.1 Amendment No. 2, dated as of May 24, 1995, by and between the
Company and Terence F. McGuirk, to the Employment Agreement,
dated as of December 20, 1993.
11 Computation of Earnings per Common and Common Equivalent Share.
27 Financial Data Schedule (for the SEC use only).
(b) Reports on Form 8-K
No reports have been filed on Form 8-K during the quarter for which
this report is filed.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements 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.
By: /s/ William S. Ghegan
------------------------------------
William S. Ghegan
Vice President, Controller and
Chief Accounting Officer
Date: August 11, 1995
24
<PAGE> 1
EXHIBIT 10.33.1
TURNER BROADCASTING SYSTEM, INC.
1993 STOCK OPTION AND EQUITY-BASED AWARD PLAN
AMENDMENT NO. 1
WHEREAS, the Turner Broadcasting System, Inc. 1993 Stock Option and
Equity-Based Award Plan (the "Plan") was approved by the Stock Option and
Compensation Committee (the "Committee") of the Board of Directors of Turner
Broadcasting System, Inc. (the "Corporation") and by the holders of a majority
of the outstanding shares of the stock of the Corporation entitled to vote
thereon at such time;
WHEREAS, the Plan currently provides that, subject to certain
adjustments in accordance with the Plan, the aggregate number of shares of
Common Stock for which Awards may be granted under the Plan shall be 5,000,000
shares;
WHEREAS, the Committee in its administration of the Plan has
determined that it is in the best interest of the Corporation and the Optionees
under the Plan to amend the Plan as more fully described below, subject to the
limitations set forth in Section 21 of the Plan:
WHEREAS, the plan shall be amended as follows:
1. Amendment. Subject to the approval of the
shareholders of the Corporation, Section 5(a) of the Plan is hereby amended by
the deletion of the reference to "5,000,000 shares" in the first sentence
thereof and the insertion in lieu of such deleted language of a reference to
"15,000,000 shares".
2. Effectiveness. The foregoing amendment to the Plan
was approved as of April 24, 1995 by the Committee and the Board of Directors
of the Corporation, and was recommended for submission to the shareholders of
the Corporation for approval at the 1995 annual meeting of shareholders. The
amendment set forth in paragraph 1 above shall become effective as of and only
upon the approval by the holders of a majority of the outstanding shares of the
stock of the Corporation represented at such annual meeting, provided that a
quorum of shareholders is present in person or by proxy.
<PAGE> 2
3. Defined Terms. All capitalized terms used herein
without definition shall have the meanings assigned thereto in the Plan.
4. No Other Amendment. This Amendment No. 1 is limited
precisely as written and shall not constitute a modification of any other
provision of the Plan. Except as specifically modified or amended by this
Amendment No. 1, the Plan shall remain in full force and effect in accordance
with its terms.
2
<PAGE> 1
EXHIBIT 10.34.1
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of the 24th day of May, 1995 by and between W.
Thomas Johnson, an individual resident of the State of Georgia (hereinafter
referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation
organized under the laws of the State of Georgia (hereinafter referred to as
the "Company");
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain
employment agreement of December 20, 1993, as amended as of January 26, 1994
(the "Employment Agreement");
WHEREAS, the parties desire to enter into this Second Amendment to
amend the Employment Agreement so as to extend the term thereof:
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree to amend the Employment Agreement as follows:
1. Section 2 of the Employment Agreement is hereby deleted and
the following new Section 2 shall be substituted therefor:
Section 2. Term. The Term shall commence on the date of this
Agreement and continue until the earlier to occur of the following: (a) the
date that is five (5) years after December 20, 1993; or (b) in the event
Employee's employment is terminated pursuant to Section 6 with an effective
date that is prior to the date set forth in (a), then the effective date of
such termination. References in the Employment Agreement to the
<PAGE> 2
"Four-Year Term" are hereby amended to the term "Five-Year Term" and shall
refer to the period of time from the date of the Agreement to the date that is
five (5) years after December 20, 1993.
2. Schedule 3.2 of the Employment Agreement is hereby amended to
substitute the following for the "Salary" and "Bonus" provisions of Schedule
3.2:
"Salary:
December 20, 1993 through December 19, 1994 - $700,000.00
December 20, 1994 through December 19, 1995 - $735,000.00
December 20, 1995 through December 19, 1996 - $770,000.00
December 20, 1996 through December 19, 1997 - $810,000.00
December 20, 1997 through December 19, 1998 - the greater of
$870,750.00, or $810,000.00 plus the greater of the rate of
increase in the Consumer Price Index for all urban consumers
for the year ended December 31, 1997 as determined by the U.S.
Department of Labor (U.S. City Average, with 1982 as the base
year), or the rate of increase for similarly situated
executives for the year ended December 31, 1997 as determined
in the American Compensation Association Survey, as provided
by Towers Perrin."
"Bonus:
For the year ended December 31, 1994 - $350,000.00
For the year ended December 31, 1995 - $365,000.00
For the year ended December 31, 1996 - $385,000.00
For the year ended December 31, 1997 - $405,000.00
For the year ended December 31, 1998 - $435,375.00"
3. This Second Amendment shall be contingent upon the Company
granting to Employee the option to purchase 110,000 shares of the Company's
Class B Common Stock at an option price of $16.875 per share (the "Option
Grant") pursuant to the Turner Broadcasting System 1993 Stock Option and
Equity-Based Award Plan (the "Plan"). The Option Grant shall be contingent
only upon approval by the Company's Shareholders at the Annual Meeting of
Shareholders on June 9, 1995 of the proposal to approve an amendment to the
Plan (the "Plan Amendment"). The Option Grant shall
-2-
<PAGE> 3
provide for vesting of one-third of such options on December 19, 1996,
one-third on December 19, 1997 and one-third on December 19, 1998.
Notwithstanding anything herein or elsewhere to the contrary, in the event of
Employee's death or disability on or prior to approval of the Plan Amendment,
the salary, bonus and other benefits provided herein (other than the Option
Grant) shall become effective upon the date of Employee's death or disability;
and the Option Grant shall become effective upon the approval of the Plan
Amendment by the Company's Shareholders.
4. Except as expressly amended hereby, the terms and conditions
of the Employment Agreement shall remain in full force and effect.
5. This Second Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ Terence McGuirk
-----------------------------
Its: Executive Vice President
----------------------------
ATTEST: /s/ Steven W. Korn
--------------------------------
NAME: Steven W. Korn
--------------------------------
TITLE: Vice President & General Counsel
--------------------------------
EMPLOYEE
/s/ W. Thomas Johnson
----------------------------------
W. Thomas Johnson
-3-
<PAGE> 1
EXHIBIT 10.35.1
SECOND AMENDMENT TO EMPLOYMENT AGREEMENT
This Second Amendment to Employment Agreement (the "Second Amendment")
is made and entered into as of the 24 day of May, 1995 by and between Terence
F. McGuirk, an individual resident of the State of Georgia (hereinafter
referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation
organized under the laws of the State of Georgia (hereinafter referred to as
the "Company");
W I T N E S S E T H:
WHEREAS, Employee and the Company are parties to that certain
employment agreement of December 20, 1993, as amended as of January 26, 1994
(the "Employment Agreement");
WHEREAS, the parties desire to enter into this Second Amendment to
amend the Employment Agreement so as to extend the term thereof;
NOW, THEREFORE, in consideration of the premises and the mutual
promises and agreements contained herein, the parties hereto, intending to be
legally bound, hereby agree to amend the Employment Agreement as follows:
1. Section 2 of the Employment Agreement is hereby deleted and
the following new Section 2 shall be substituted therefor:
Section 2. Term. The Term shall commence on the date of this
Agreement and continue until the earlier to occur of the following: (a) the
date that is five (5) years after December 20, 1993; or (b) in the event
Employee's employment is terminated pursuant to Section 6 with an effective
date that is prior to the date set forth in (a), then the effective date of
such termination. References in the Employment Agreement to the
<PAGE> 2
"Four-Year Term" are hereby amended to the "Five-Year Term" and shall refer to
the period of time from the date of the Agreement to the date that is five (5)
years after December 20, 1993.
2. Schedule 3.2 of the Employment Agreement is hereby amended to
substitute the following for the "Salary" and "Bonus" provisions of Schedule
3.2:
"Salary:
December 20, 1993 through December 19, 1994 - $855,000.00
December 20, 1994 through December 19, 1995 - $895,000.00
December 20, 1995 through December 19, 1996 - $940,000.00
December 20, 1996 through December 19, 1997 - $990,000.00
December 20, 1997 through December 19, 1998 - the greater of
$1,064,250.00, or $990,000.00 plus the greater of the rate of
increase in the Consumer Price Index for all urban consumers
for the year ended December 31, 1997 as determined by the U.S.
Department of Labor (U.S. City Average, with 1982 as the base
year), or the rate of increase for similarly situated
executives for the year ended December 31, 1997 as determined
in the American Compensation Association Survey, as provided
by Towers Perrin."
"Bonus:
For the year ended December 31, 1994 - $645,000.00
For the year ended December 31, 1995 - $680,000.00
For the year ended December 31, 1996 - $715,000.00
For the year ended December 31, 1997 - $750,000.00
For the year ended December 31, 1998 - $808,830.00"
3. This Second Amendment shall be contingent upon the Company
granting to Employee the option to purchase 183,000 shares of the Company's
Class B Common Stock at an option price of $16.875 per share (the "Option
Grant") pursuant to the Turner Broadcasting System 1993 Stock Option and
Equity-Based Award Plan (the "Plan"). The Option Grant shall be contingent
only upon approval by the Company's Shareholders at the Annual Meeting of
Shareholders on June 9, 1995 of the proposal to approve an amendment to the
Plan (the "Plan Amendment"). The Option Grant shall
-2-
<PAGE> 3
provide for vesting of one-third of such options on December 19, 1996,
one-third on December 19, 1997 and one-third on December 19, 1998.
Notwithstanding anything herein or elsewhere to the contrary, in the event of
Employee's death or disability on or prior to approval of the Plan Amendment,
the salary, bonus and other benefits provided herein (other than the Option
Grant) shall become effective upon the date of Employee's death or disability;
and the Option Grant shall become effective upon the approval of the Plan
Amendment by the Company's shareholders.
4. Except as expressly amended hereby, the terms and conditions
of the Employment Agreement shall remain in full force and effect.
5. This Second Amendment shall be governed by and construed in
accordance with the laws of the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have executed this Second
Amendment as of the date first above written.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ W. M. Shaw
--------------------------------
Its: Vice President - Administration
--------------------------------
ATTEST: /s/ Steven W. Korn
--------------------------------
NAME: Steven W. Korn
--------------------------------
TITLE: Vice President & General Counsel
--------------------------------
EMPLOYEE
/s/ Terence F. McGuirk
----------------------------------
Terence F. McGuirk
-3-
<PAGE> 1
EXHIBIT 11
PAGE 1 OF 2
TURNER BROADCASTING SYSTEM,INC.
COMPUTATION OF PRIMARY EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
------------------ ----------------
<S> <C> <C>
Net income applicable to common stock $ 21,700 $ 43,690
======== ========
Weighted average number of shares outstanding during the period 205,926 205,851
Add: Common equivalent shares issuable assuming conversion of
Class C Convertible Preferred Stock 74,382 74,382
Shares issuable upon exercise of stock options 16,283 16,283
Subtract: Shares which would have been purchased with proceeds
from exercise of such stock options 13,561 13,828
-------- --------
Weighted average number of common stock, common stock
equivalents and converted shares outstanding 283,030 282,688
======== ========
Weighted average number of Class A common shares and common
stock equivalents 68,330 68,330
======== ========
Weighted average number of Class B common shares and common
stock equivalents 214,700 214,358
======== ========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.08 $ 0.15
======== ========
</TABLE>
<PAGE> 2
EXHIBIT 11
PAGE 2 OF 2
TURNER BROADCASTING SYSTEM,INC.
COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1995
------------------ ----------------
<S> <C> <C>
Net income applicable to common stock $ 21,700 $ 43,690
Add: Interest expense on zero coupon subordinated convertible
notes due 2007 4,510 8,942
Interest expense on 6.5% convertible notes 473 946
Subtract: Additional income taxes (2,093) (4,153)
-------- --------
Adjusted net income applicable to common stock $ 24,590 $ 49,425
======== ========
Primary weighted average number of shares outstanding 283,030 282,688
Add: Common equivalent shares issuable assuming conversion of
convertible notes due 2007 7,440 7,440
Change in shares due to options assumed converted using the
end of period market value 828 828
Common equivalent shares issuable assuming conversion
of 6.5% convertible notes 1,661 1,661
-------- --------
Weighted average number of common stock, common stock
equivalents and convertible shares, assuming full dilution 292,959 292,617
======== ========
Weighted average number of Class A common shares and common
equivalents and convertible shares, assuming full dilution 68,330 68,330
======== ========
Weighted average number of Class B common shares and common
equivalents and convertible shares, assuming full dilution 224,629 224,287
======== ========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.08 $ 0.17
======== ========
</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.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<CASH> 68,808
<SECURITIES> 0
<RECEIVABLES> 410,791
<ALLOWANCES> (34,592)
<INVENTORY> 0
<CURRENT-ASSETS> 1,041,207
<PP&E> 568,928
<DEPRECIATION> (244,718)
<TOTAL-ASSETS> 3,866,705
<CURRENT-LIABILITIES> 622,753
<BONDS> 2,288,032
<COMMON> 12,875
0
260,438
<OTHER-SE> 109,153
<TOTAL-LIABILITY-AND-EQUITY> 3,866,705
<SALES> 1,508,201
<TOTAL-REVENUES> 1,508,201
<CGS> 886,065
<TOTAL-COSTS> 1,332,331
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 9,523
<INTEREST-EXPENSE> 97,284
<INCOME-PRETAX> 75,328
<INCOME-TAX> 31,638
<INCOME-CONTINUING> 43,690
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,690
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.00
</TABLE>
