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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, 1995
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
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COMMISSION FILE NO. 0-9334
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 30303
ATLANTA, GEORGIA (Zip Code)
(Address of principal executive offices)
(404) 827-1700
(Registrant's telephone number, including area code)
Securities registered pursuant to section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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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
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, 1996: $273,300,000 Class A Common Stock,
$1,461,600,000 Class B Common Stock, $233,100,000 Class C Convertible Preferred
Stock.
The number of shares outstanding of each of the registrant's classes of
common stock as of December 31, 1995: Class A Common Stock, par value
$0.0625 -- 68,330,388 shares and Class B Common Stock, par value $0.0625 --
137,982,831 shares.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Portions of the registrant's Annual Report to Shareholders for the
fiscal year ended December 31, 1995 (the "1995 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 "1996
Proxy Statement") to be filed with the Commission on or about April 30, 1996
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, 1995, the Company
owned and operated four domestic entertainment networks, four international
entertainment networks (together the "Entertainment Networks"), and four news
networks. The Company produces and distributes entertainment and news
programming worldwide, with operations in motion picture, animation, sports and
television production, home video, television syndication, licensing and
merchandising, and publishing.
RECENT DEVELOPMENTS
The Company has entered into an Amended and Restated Agreement and Plan of
Merger dated as of September 22, 1995 (the "Merger Agreement") among the
Company, Time Warner Inc. ("Time Warner"), TW Inc., a Delaware corporation and
currently a wholly-owned subsidiary of Time Warner ("New Time Warner"), Time
Warner Acquisition Corp., a Delaware corporation ("Delaware Sub") and TW
Acquisition Corp., a Georgia corporation ("Georgia Sub"), which provides for a
transaction in which the Company and Time Warner will each become a wholly-owned
subsidiary of a new holding company, New Time Warner. Pursuant to the Merger
Agreement, (a) Georgia Sub will be merged into the Company (the "TBS Merger"),
(b) each outstanding share of Class A Common Stock, par value $0.0625 per share,
of the Company and each share of Class B Common Stock, par value $0.0625 per
share, of the Company (other than shares held directly or indirectly by Time
Warner or New Time Warner or in the treasury of the Company and other than
shares with respect to which dissenters' rights are properly exercised) will be
converted into 0.75 of a share of common stock, par value $.01 per share, of New
Time Warner ("New Time Warner Common Stock"), (c) each share of Class C
Convertible Preferred Stock, par value $.125 per share, of the Company (other
than shares held directly or indirectly by Time Warner or New Time Warner or in
the treasury of the Company and other than shares with respect to which
dissenters' rights are properly exercised) will be converted into 4.80 shares of
New Time Warner Common Stock, (d) Delaware Sub will be merged into Time Warner
(the "TW Merger" and together with the TBS Merger, the "Mergers"), (e) each
outstanding share of common stock, par value $1.00 per share, of Time Warner
(other than shares held directly or indirectly by Time Warner) will be converted
into one share of New Time Warner Common Stock, (f) each outstanding share of
each series of preferred stock of Time Warner (other than shares held directly
or indirectly by Time Warner and shares with respect to which appraisal rights
are properly exercised) will be converted into one share of a substantially
identical series of preferred stock of New Time Warner having the same
designation as the shares of preferred stock of Time Warner so converted, (g)
each of Time Warner and the Company will become a wholly-owned subsidiary of New
Time Warner and (h) New Time Warner will be renamed "Time Warner Inc."
The Mergers are subject to a number of closing conditions, including
regulatory approvals and the approval of the shareholders of the Company and the
stockholders of Time Warner. Among the required regulatory approvals are (i) the
approval of the Federal Communications Commission (the "FCC") and (ii) the
expiration of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). Both the FCC and the
Federal Trade Commission (the "FTC"), which has the responsibility for reviewing
the parties' filings under the HSR Act, are closely reviewing the Mergers. There
can be no assurance that all of the conditions to the consummation of the
Mergers will be satisfied or that, as a condition to the grant of any approvals
by government agencies, including the FCC and the FTC, changes will not be
required to the terms of the Merger Agreement or the other agreements entered
into by the Company, Time Warner and Liberty Media Corporation ("LMC") and its
affiliates in connection with the Mergers. As a result of the arrangements among
R.E. Turner, the Company, Time Warner and LMC and its affiliates, holders of a
sufficient number of shares of the Company's capital stock of each class have
agreed to vote in favor of the TBS Merger to assure its approval by the
Company's shareholders, regardless of the vote of any other shareholders of the
Company. The LMC Agreement described below, however, provides that the
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obligation of LMC and its affiliates to vote in favor of the TBS Merger is
subject to certain conditions, including there not having been amendments to the
related agreements that would have certain effects on LMC.
Concurrently with the execution of the Merger Agreement, the Company and
LMC Southeast Sports Inc. ("LMC Sports"), entered into a Stock Purchase
Agreement (the "SportSouth Agreement") pursuant to which the Company will sell
to LMC Sports all of the outstanding capital stock of Turner Sports Programming,
Inc. ("TPSI") which owns a 44% interest in SportSouth Network, Ltd.
("SportSouth"). The purchase price for the stock of TPSI (currently estimated to
be $60 million) will be determined in accordance with a formula set forth in the
SportSouth Agreement. The transaction contemplated by the SportSouth Agreement
is conditioned upon the consummation of the Mergers. The Company has also
agreed, subject to the consummation of the Mergers, to extend the existing
affiliation agreements pursuant to which Tele-Communications, Inc. and its
affiliates distribute programming produced by the Company.
Pursuant to the Amended and Restated LMC Agreement (the "LMC Agreement"),
dated as of September 22, 1995, among Time Warner, New Time Warner, LMC and
certain of its affiliates, LMC and certain of its affiliates have agreed,
subject to certain conditions, to vote all their shares of Company capital stock
in favor of the approval of the TBS Merger and each of the other transactions
contemplated by the Merger Agreement and in favor of the approval of the Merger
Agreement. Pursuant to the LMC Agreement, Time Warner has agreed with LMC that,
upon the happening of certain events, LMC will have the right to cause Time
Warner to terminate the Merger Agreement and abandon the Mergers.
On February 16, 1996, the Company and Time Warner Inc. announced plans to
launch a 24-hour sports news cable service, CNN-SI, combining the resources of
CNN's news operations and Sports Illustrated's print and television staff. The
launch is currently scheduled for December 1996.
BUSINESS SEGMENTS
The Company's operations are in two primary industry segments:
Entertainment and News. The Entertainment Segment consists of Entertainment
Networks and Entertainment Production and Distribution, which accounted for
approximately 73% of the Company's consolidated revenue (after elimination of
intersegment revenues) for the year ended December 31, 1995. The News Segment
consists of domestic and international news networks.
For additional financial information about the Company's industry segments
for each of the three years ended December 31, 1995, see Note 15 of Notes to
Consolidated Financial Statements in the 1995 Annual Report to Shareholders,
which is incorporated herein by reference.
ENTERTAINMENT
ENTERTAINMENT NETWORKS
At December 31, 1995, the 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 1995 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 also is 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 1996 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 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. All of the TNT Latin America
schedule is dubbed audio or subtitled in English, Spanish and Portuguese. At
December 31, 1995, TNT Latin America was distributed to subscribers in 36
countries and territories. Revenues from this service are derived primarily 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. All
of the Cartoon Network Latin America schedule is dubbed audio or subtitled in
English, Spanish and Portuguese. At December 31, 1995, Cartoon Network Latin
America was distributed to subscribers in 33 countries and territories. Revenues
from this service are derived primarily from subscription fees based on
contracts with cable operators that specify minimum subscriber levels.
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, 1995,
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TNT & Cartoon Network Europe was distributed in 41 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. Approximately
45% 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, 1995, TNT &
Cartoon Network Asia was distributed in 20 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. All of the
animated programming schedule is dubbed audio or subtitled in English and
Mandarin, and 80% of the schedule is dubbed audio or subtitled in Thai. All of
the film product programming schedule is dubbed audio or subtitled in English
and 40% of the schedule is dubbed audio or subtitled in Mandarin and Thai with
more languages expected to be added in later years. The service derives 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, licensed programming, original productions and program rights
to sports events.
The Company's 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 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 in excess of specified amounts under the agreement. The Company also
has an agreement with the National Football League to televise a certain number
of preseason and regular season Thursday and Sunday night games in each of the
1994 through 1997 seasons in return for rights fees aggregating $496 million.
See "Other Businesses -- The Atlanta Braves" for discussion of additional sports
programming.
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,
movie theaters and all other forms of audio/visual entertainment, and news and
information services. In the Atlanta
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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
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, satellite
distributed programming services, home video, movie theaters and all other forms
of audio/visual entertainment, and news and information services.
ENTERTAINMENT PRODUCTION AND DISTRIBUTION
The Entertainment Production and Distribution group is 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 New Line Cinema Corporation ("New Line"),
Castle Rock Entertainment ("Castle Rock"), and Turner Pictures Worldwide, Inc.
("Turner Pictures Worldwide"), each of which is principally involved in motion
picture and television production. In 1995, these entities released an aggregate
of 28 theatrical films. The Company anticipates that these three entities will
release theatrically an aggregate of up to 40 films in 1996. After theatrical
release, the films will be distributed both domestically and internationally by
the Company primarily in the pay-per-view, home video, premium cable network,
television and other syndication and basic 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.
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 approximately 2,600 television episodes, specials
and pilots. 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, premium cable network, television and
other syndication and basic cable network markets principally through its own
organization, except for certain pre-existing agreements related to the TEC
Library and Castle Rock 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.
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After the termination or revision of pre-existing distribution agreements
with Sony Pictures Entertainment, Inc. and certain of its affiliates, Castle
Rock theatrical product became available for international theatrical and home
video distribution by the Company in certain territories in 1994. In addition,
Castle Rock theatrical product will become available for distribution by the
Company in the domestic home video market in 1997 and domestic theatrical market
in 1998.
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
The production and distribution of theatrical motion pictures, television
product and videocassettes are highly competitive businesses. 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. With respect to distribution of episodic television product,
there is significant competition from independent producers and distributors as
well as major studios. Revenues from filmed entertainment, depend in part upon
general economic conditions, but the competitive position of a producer or
distributor is still greatly affected by the quality of, and public response to,
the entertainment product it makes available to the marketplace, and this in
turn depends in part upon the marketing strategy of the producer or distributor
as compared to that of the competition as well as the quality and variety of
competing products. As a result of this competition for viewers, the Company is
vulnerable to the risk of volatile operating results in future periods.
NEWS
At December 31, 1995, the Company's News Segment consisted of three
domestic networks, Cable News Network ("CNN"), Headline News, and CNN Financial
News Network ("CNNfn"), 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 1995 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. As of December 31, 1995, CNN
obtains reports from 30 news bureaus, of which nine are in the United States
(Atlanta, Chicago, Dallas, Detroit, Los Angeles, Miami, New York, San Francisco
and Washington, D.C.) and 21 are located outside the United States (Amman,
Bangkok, Beijing, Berlin, Brussels, Cairo, Hong Kong, Jakarta, Jerusalem,
Johannesburg, London, 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 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.
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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.
CNN Interactive is a newly formed division within CNN which has as its
mission to create and deliver the leading branded interactive news service over
non-broadcast delivery platforms. On August 30, 1995, CNN Interactive launched
its site on the World Wide Web portion of the Internet (at http://CNN.com). This
site provides a wide range of news and information and is updated 24 hours per
day. The stories are presented via a combination of video clips, sound files,
still images and text. A complementary interactive news site dedicated to
business news is provided by CNNfn (at http://CNNfn.com). In addition, in a
joint effort with Time Magazine, a separate site covering politics was launched
on January 29, 1996 (at http://AllPolitics.com).
CNNfn is a 12-hour per day, 5-day per week financial news service which was
launched on December 29, 1995 in the United States. CNNfn provides live, global
market news and information, business news, political-economic analysis,
consumer news and personal financial reports and is broadcast domestically in
connection with the CNN International domestic feed.
Revenues for CNN, Headline News and CNNfn 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 "Business Segments -- Entertainment -- Entertainment
Networks -- Domestic" for a discussion of the items affecting the sale of
advertising time. The programming of CNN, Headline News and CNNfn is transmitted
via satellite to local cable systems and others which have contracted directly
with CNN to obtain these news program services.
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, 1995. At December 31,
1995, CNN International was available in over 200 countries and territories on
five continents. In January 1995, the CNN International satellite feed became
available on a limited basis in the United States and, since December 29, 1995,
is distributed with CNNfn. 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, 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.
In November 1995 the Company announced the planned addition of a new
network, a 24-hour per day television news service in Spanish that will be
available by April 1997 for all of Latin America. The Company expects the new
network will provide a much greater penetration into the region's predominantly
Spanish speaking population.
Competition
The News Networks compete nationally and CNN International also competes
internationally with other cable and television news services for distribution
to viewers, and each network competes 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 -- Entertainment Networks -- Competition."
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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, 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 Eugene, Oregon. 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 League") are represented for collective bargaining purposes by the
Major League Baseball Players' Association (the "Baseball Players'
Association"). On March 19, 1990, the Major League 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 League
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 League 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. During 1995, the Baseball Players' Association and club
owners reached an agreement whereby the Baseball Players' Association
representatives played an abbreviated 1995 Championship Season. The strike did
not have an adverse impact on the Company's consolidated financial position in
1994 or 1995. Currently, no collective bargaining agreement exists between the
owners and Baseball Players' Association; however, the Braves expect to
participate in the 1996 Championship Season.
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 an agreement with Entertain-
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ment 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 and National Broadcasting Company ("NBC") to
telecast certain major league games over six seasons beginning in 1994. The
joint venture agreement contained provisions for the cancellation of the
remaining term of the contract by the participants, without penalty if certain
minimum revenues were not generated from such telecasts. This agreement was
terminated with the last game of the 1995 World Series. In December 1995, the
Major League negotiated with NBC, Fox Broadcasting Company ("Fox"), ESPN, and
LMC to enter into four- and five-year agreements whereby NBC, Fox, ESPN and LMC
will be granted broadcasting rights to various pre-season, regular season, and
post-season games and series through the 2000 baseball season. Such agreements
will supersede any existing agreements between those entities and the Major
League. The terms of the agreements are subject to approval by the Major League
and are expected to be finalized in advance of the 1996 Championship Season.
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 1995 and 1994, no formal agreement existed; however, 108 and
88 games were telecast in each season, respectively. 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 to be paid for 1995 and
1994, as well as address future seasons. An estimate of the 1995 and 1994 rights
fees has been accrued in the Consolidated Financial Statements in the Company's
1995 Annual Report to Shareholders incorporated herein by reference. TBS
Superstation expects to televise approximately 125 Braves games during 1996.
Also, SportSouth Network, Ltd., an unconsolidated entity in which the Company
holds a 44% interest, intends to telecast 30 games in 1996 pursuant to an
agreement with ANLBC.
In March 1993, the Braves entered into an agreement with the City of
Atlanta and the Fulton County Recreation Authority (the "Authority") whereby the
Braves agreed to lease from the Authority certain stadium facilities (the
"Stadium") to be constructed for use in staging the 1996 Summer Olympic Games
and then converted into a facility for use as a Major League baseball stadium.
The minimum lease term is twenty years commencing upon the conversion of the
Stadium into a baseball facility. The Braves have the option to extend the lease
for four successive five year periods. This agreement is contingent upon certain
factors including the construction of the Stadium and the conversion of the
Stadium into a baseball facility.
In November 1995, the Braves entered into an agreement with the Atlanta
Committee for the Olympic Games, Inc., whereby the Braves have agreed, under
certain conditions, to contribute the sum of $23.4 million toward the payment of
certain costs to construct the Stadium, including modifications for permanent
use as a baseball facility and demolition of the existing facility used by the
Braves, both after the staging of the 1996 Summer Olympic Games. All such costs
are expected to be paid in 1996 and 1997, and the 1997 Championship Season is
scheduled to be played in the new facility.
In March 1995, the baseball clubs of the National and American Leagues
entered into agreements (the "Expansion Club Agreements") with the St.
Petersburg Baseball Limited Partnership and the AZPB Limited Partnership whereby
the 28 existing Major League clubs (the "Existing Clubs") would admit expansion
clubs owned by the respective partnerships (the "Expansion Clubs"), located in
St. Petersburg, Florida and Phoenix, Arizona, respectively, into the Major
League commencing with the 1998 season. Pursuant to the Expansion Club
Agreements, the Expansion Clubs will remit to the Existing Clubs a total of $260
million for their entrance into the Major League.
During fiscal 1995, the Braves received approximately $2.3 million from the
Expansion Clubs, representing its pro-rata allocation of the 1995 expansion
payments. The Braves pro-rata allocation of the 1996 and 1997 payments is $1.8
million and $5.2 million, respectively.
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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 is 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 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. 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 and for the 1994-1995 season, the NBA and NBPA operated under a one-
year extension of the agreement.
In September 1995, the NBA and the NBPA entered a new six-year collective
bargaining agreement. The new agreement, among other things, will reduce the NBA
draft to one round starting in 1998, continues the salary cap which ties a
team's payroll to the league's gross revenues (as defined) and beginning July 1,
1996, provides unrestricted free agency for all players at the conclusion of
their contracts.
The Company has reached a preliminary agreement with the Authority to build
a new multi-purpose arena adjacent to CNN Center to replace the Omni Coliseum.
The agreement provides that the new arena and substantial infrastructure
improvements surrounding the new arena would be funded primarily by the proceeds
from bonds issued by the Authority and tax-exempt bonds secured by certain
rental car tax revenues, respectively. The Company expects to contribute $10
million towards the cost of the infrastructure improvements and become a 50%
partner in a joint venture that would operate the new arena. Revenues from arena
operations would repay and secure the taxable arena bonds. The agreement is
subject to a number of contingencies, including Company approval of the budgeted
cost of the new arena and infrastructure, identification of a temporary playing
venue for the Hawks during the two-year construction period, governmental
approvals and authorizations, State of Georgia legislative approval to impose a
rental car tax and the sale of the taxable arena bonds and the tax-exempt rental
car tax bonds.
As a part of the preliminary agreement, the Hawks have agreed to play their
home games in the new arena so long as the taxable arena bonds are outstanding
(up to 30 years). The Hawks have also agreed to pledge their revenues as
collateral for the taxable arena bonds in exchange for a backup pledge by the
City of Atlanta and Fulton County to guarantee payment of the taxable arena
bonds.
SPORTSOUTH NETWORK
In May 1990, TSPI, a wholly-owned subsidiary of the Company, entered into
an agreement with LMC and Scripps Howard Production, Inc. ("Scripps Howard") to
form SportSouth. SportSouth was formed to launch SportSouth Network, a regional
sports network serving the Southeast. As of December 31, 1995, 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
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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, 1995, SportSouth
Network served approximately 5.1 million U.S. television households. For
additional information relative to SportSouth, see "Business -- Recent
Developments."
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 40 million homes
in Germany and other parts of Europe, primarily via cable systems and satellite.
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, 1995, the Company's ownership interest in n-tv was 33.1%. For additional
information concerning the acquisition of the ownership interest in n-tv, see
Note 3 of Notes to Consolidated Financial Statements in the 1995 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 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 and TNT, the domestic syndication markets, and pay-per-view
television. WCW also stages live wrestling events.
REGULATION
The Telecommunications Act of 1996 (the "1996 Act") was enacted into law on
February 8, 1996. The 1996 Act modifies various provisions of the Communications
Act of 1934, as amended (the "Communications Act"), and the Cable Television
Consumer Protection and Competition Act of 1992 (the "1992 Act"), with the
intent of establishing a pro-competitive, deregulatory policy framework for
telecommunications. The Federal Communications Commission (the "FCC" or the
"Commission") is charged with implementation of the 1996 Act. The Company at
this time cannot predict the full effect that the 1996 Act or the FCC's
implementing regulations may have on the Company's operations.
BROADCAST REGULATION
Television broadcasting is subject to the jurisdiction of the FCC under 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.
The 1996 Act extends the future term of licenses granted by the FCC for the
operation of television broadcast stations from five to eight years. The 1996
Act also provides that the FCC shall grant an application for renewal of a
broadcast station license if the FCC finds that the station has served the
public interest, has engaged in no serious violations of the Communications Act
or the FCC's rules, and has not engaged in violations that demonstrate a pattern
of abuse. The comparative license renewal process has been abolished. These
changes could enhance the value of the broadcast license of TBS Superstation by
lengthening the station's future license terms, streamlining the renewal
process, and eliminating the prospect of a comparative renewal challenge.
On August 9, 1995, the FCC released a Fourth Further Notice of Proposed
Rulemaking and Third Notice of Inquiry to consider a broad range of issues
regarding the conversion by television broadcasters from analog to digital
technology. Among other things, the FCC is considering regulations to promote
the efficient use of advanced television ("ATV") spectrum, whether restrictions
should be placed on the use of ATV
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channels, what public interest standards should apply to ATV service, what
transition period should apply, and how existing laws will be affected by the
transition to digital broadcasting. On November 25, 1995, the Company filed
comments with the FCC opposing any extension of must-carry rights to ATV
broadcast stations (see "Business -- Regulation -- Cable
Regulation -- Must-Carry and Retransmission Consent"). Any regulatory change, if
adopted, could affect the operations of TBS Superstation and 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, if any, that
regulatory changes may have on the Company's operations.
The 1996 Act provides that if the FCC issues additional licenses for ATV
service, it must limit eligibility for such licenses to current broadcast
licensees. As a condition for grant of an ATV license, a broadcaster must agree
to surrender its original spectrum or its ATV spectrum for reallocation pursuant
to FCC regulation. These changes could enhance the value of the broadcast
license of TBS Superstation by making the station eligible to hold an ATV
license. The Company at this time cannot predict the overall effect, if any,
that these requirements may have on the Company's operations.
The 1996 Act directs the FCC to modify its rules to eliminate the
restrictions on the number of television stations that a single person or entity
may own nationally and to permit a single television broadcast licensee to own
stations with a combined national audience reach of 35 percent. The 1996 Act
also directs the FCC to conduct a rulemaking proceeding to determine whether to
retain, modify or eliminate its limitations on the number of television stations
that a single person or entity may own or operate within the same television
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 these proceedings or the overall effect, if any, that they may
have on the Company's operations.
The 1996 Act directs the FCC to revise its regulations to permit a
television broadcast station to affiliate with a person or entity that maintains
two or more networks of television broadcast stations, subject to certain
restrictions set forth in the statute. These changes could affect the Atlanta
and national markets in which the Company operates. The Company at this time
cannot predict the overall effect, if any, that such regulatory revisions may
have on the Company's operations.
CABLE REGULATION
Cable television systems are regulated by the FCC and by states,
municipalities or other local governmental authorities ("Local Authorities").
Local Authorities generally have the jurisdiction to review and grant renewal
and transfer of cable franchises, to review rates charged to subscribers, and to
require public, educational, government and/or leased-access channels, except to
the extent that such jurisdiction is preempted by federal law. Rate regulations
or other franchise conditions could place downward pressure on subscriber fees
earned by the Company, and regulatory carriage requirements could adversely
affect the number of channels available to carry the Company's networks.
The 1992 Act became law on October 5, 1992. The 1996 Act modifies the 1992
Act in a variety of ways. The principal provisions of the 1992 Act and the 1996
Act that may affect the Company's operations are discussed below. The Company
cannot predict the full effect that the 1996 Act may have on the Company's
operations.
Definition of Cable System
The 1996 Act amends the definition of cable system to exclude facilities
that do not use public rights-of-way (e.g., satellite master antenna television
services serving multiple buildings not under common ownership or control), thus
exempting such facilities from franchise and other requirements applicable to
cable operators. The Company at this time cannot predict the overall effect, if
any, that this change may have on the Company's operations.
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Rate Regulation
Section 623 of the Communications Act, as amended by the 1992 Act,
established 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 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 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.
The FCC on November 10, 1994 adopted a 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 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. The Commission's implementing regulations
were upheld by the United States Court of Appeals for the District of Columbia
Circuit, and a petition for a writ of certiorari was denied by the United States
Supreme Court. The Company cannot predict the ultimate outcome of the
litigation.
The 1996 Act expands the definition of "effective competition" to include
instances in which a local exchange carrier or its affiliate (or a multichannel
video programming distributor using the facilities of such carrier or its
affiliates) offers comparable video programming directly to subscribers by any
means (other than
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direct-to-home satellite service) in the operator's franchise area. This
expansion of the definition of "effective competition" will trigger deregulation
of cable rates in any cable franchise area where a telephone company offers
comparable video programming as defined by the statute. This change could
increase distribution of the Company's networks and enhance subscriber fees
earned by the Company from cable operators affected by rate deregulation. The
Company at this time cannot predict the overall effect, if any, that this change
may have on the Company's operations.
The 1996 Act deregulates the rates for cable programming services (i.e.,
upper tiers of service) provided after March 31, 1999, and immediately
deregulates upper tier rates for entities that operate small cable systems as
defined under the statute. The 1996 Act also eliminates the uniform rate
structure requirements for cable operators in areas subject to effective
competition or to video programming offered on a per channel or per program
basis. These changes could increase distribution of the Company's networks and
enhance subscriber fees earned by the Company from facilities affected by rate
deregulation. The Company at this time cannot predict the overall effect, if
any, that these changes may have on the Company's operations.
Must Carry and Retransmission Consent
Sections 4 and 5 of the 1992 Act require cable television systems to devote
up to one-third or more of their channel capacity to the mandatory carriage of
local television stations and to provide certain channel positioning rights to
such stations. The 1992 Act also includes provisions governing the
retransmission of television broadcast signals by cable systems. These
provisions require cable operators to obtain the consent of a commercial
television station prior to retransmitting the station's broadcast signal, and
also provide those stations with the right to make a binding election every
three years between must-carry and retransmission consent. The must-carry
provisions applicable to non-commercial and commercial television stations
became effective on December 4, 1992, and October 5, 1993, respectively. These
provisions adversely affect the ability and willingness of cable systems to
carry the Company's networks by reducing the number of channels available for
the carriage of cable programming services and by limiting the cable operator's
discretion to select the mix of programming to be carried on their systems.
Pursuant to FCC regulations implementing the 1992 Act, commercial broadcast
stations must notify cable systems on or before October 1, 1996, of their
binding elections between must-carry and retransmission consent. These elections
could require affected cable systems to modify their existing channel lineups,
thereby adversely affecting carriage of the Company's networks. The Company at
this time cannot predict the overall effect, if any, that such elections may
have on the Company's operations.
The 1992 Act provides that commercial television stations have mandatory
carriage rights only on cable systems serving communities located within a
station's local television market as defined by the statute and the FCC's
regulations. The 1992 Act further provides that cable operators and television
broadcast stations may petition the FCC to modify the market of a particular
station by adding or subtracting communities from its market. The grant or
denial of such a petition could adversely affect the ability or willingness of
an affected cable operator to carry the Company's networks. On December 8, 1995,
the FCC initiated a rulemaking proceeding to consider modifying its regulations
governing the determination of local television markets. 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, if any, that a regulatory change may have on the
Company's operations.
The Company has initiated litigation challenging the must-carry and
retransmission consent provisions of the 1992 Act as unconstitutional (see
"Legal Proceedings -- Turner Broadcasting System, Inc., et al. v. Federal
Communications Commission, et al.").
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
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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 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.
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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 Cross-Ownership Rules
The 1996 Act repeals the statutory bar on cable-broadcast station
cross-ownership to permit a person or entity to own or control a television
station and a cable system with overlapping service areas. The 1996 Act leaves
in place, however, the cable-broadcast station cross-ownership restriction
contained in the FCC's rules and does not prejudge the Commission's review of
the regulation. The 1996 Act also directs the FCC to revise its regulations to
permit a person or entity to own or control a television network and a cable
system and, if necessary, to revise its regulations to ensure carriage, channel
positioning and non-discriminatory treatment of nonaffiliated broadcast stations
by a cable system subject to cross-ownership. The 1996 Act further provides that
the ban on cable-MMDS cross-ownership shall not apply to any cable operator in a
franchise area in which one cable operator is subject to effective competition
as determined under the statute. The Company at this time cannot predict the
overall effect that these changes may have on the Company's operations, if any.
Telco Entry in Video Programming
The 1996 Act provides that a local exchange carrier may provide video
programming directly to subscribers through a variety of means, including (1) as
a radio-based multichannel video programming distributor, not subject to the
Cable Act; (2) as a cable operator, fully subject to the Cable Act; and (3)
through an "open video system" certified by the FCC to be offering
nondiscriminatory capacity for unaffiliated programmers, subject only to
selected provisions of the Cable Act. A local exchange carrier also may provide
the "transmission of video programming" on a common carrier basis, with no Cable
Act obligations. The 1996 Act extends the program access requirements of the
1992 Act to a telephone company that provides video programming by any means
directly to subscribers and to programming in which such a company holds an
attributable ownership interest. The Company at this time cannot predict the
overall effect that the entry of telephone companies into the delivery of video
programming may have on the Company's operations, if any.
Rating of Video Programming
The 1996 Act provides that if the FCC determines, one year after enactment,
that program distributors, of which the Company is one, have not voluntarily
established content ratings and agreed to broadcast signals containing such
ratings, the FCC shall prescribe: (1) guidelines and procedures for
identification and rating of certain classes of video programming as defined by
the statute; and (2) rules requiring video programming distributors to transmit
the rating in a manner that permits parents to block the display of programming
they determine to be inappropriate for children. The 1996 Act also provides that
the FCC shall require television manufacturers to equip sets with a device that
enables viewers to block programs that have been designated with a specific
rating. The effective date of the manufacturing requirement must be established
by the FCC after consultation with the television manufacturing industry, but
the date may not be earlier than two years after enactment. These requirements
could affect the dissemination of the Company's networks and impose regulatory
burdens that affect the Company's operations. The Company at this time cannot
predict the overall effect, if any, that these requirements may have on the
Company's operations.
COPYRIGHT LICENSE SYSTEM
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 subscribers. Under the
Copyright Act, the amount of such royalty payments is generally based upon a
formula
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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, Headline
News, or the domestic feed of CNN International and CNNfn.
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, 1995, the Company and its wholly-owned subsidiaries had
approximately 7,000 full-time employees.
A subsidiary of TEC is signatory to collective bargaining agreements with
two unions. These agreements cover approximately 40 employees and expire in
1997. 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, Television and Television Animation
Agreements, the International Alliance of Theatrical Stage Employees Basic and
Local 839 Agreements and the Union of British Columbia Performers Agreement. One
of the Company's other subsidiaries is 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, CNNfn 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
313,000 square feet on approximately 29 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, Headline News and CNNfn to various
satellites and to receive satellite feeds for use by CNN, Headline News and
CNNfn, 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.
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The Company also leases office or studio space in major cities around the United
States and abroad for certain of its operations.
The Company owns a building of approximately 103,000 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 a fee 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. For additional information relative to ANLBC facilities, see
"Business -- Other Businesses -- The Atlanta Braves."
The Braves also lease facilities for use by its farm clubs in Richmond,
Virginia; Greenville, South Carolina and Macon, Georgia. The Braves also utilize
a facility under a player development contract in Durham, North Carolina and has
teams in West Palm Beach, Florida; Danville, Virginia; and Eugene, Oregon that
compete in rookie leagues.
ITEM 3. LEGAL PROCEEDINGS
LITIGATION
Turner Broadcasting System, Inc., et al. v. Federal Communications Commission,
et al.
On October 5, 1992, the Company filed suit in the United States District
Court for the District of Columbia challenging the provisions of the 1992 Act
that require cable television systems to devote up to one-third or more of their
channel capacity to the carriage of local television stations and provide
certain channel positioning rights to such stations (see
"Business -- Regulation -- Cable Regulation -- Must Carry and Retransmission
Consent"). The provisions also grant television stations the right to require
prior consent to the retransmission by a cable operator of the station's
broadcast signal. The Company's complaint alleges that these provisions infringe
upon the free speech rights of cable program networks and cable operators in
violation of the First Amendment of the United States Constitution. Under a
provision in the 1992 Act, the case was heard by a three-judge panel of the
District Court. On April 8, 1993, the District Court upheld the
constitutionality of the 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 proceedings. On December 12, 1995, the District Court, on remand,
again upheld the constitutionality of the provisions by a 2-1 vote. On December
21, 1995, the Company appealed the District Court's ruling to the United States
Supreme Court. On February 20, 1996, the Supreme Court noted probable
jurisdiction to hear the Company's appeal. The Company cannot predict the
outcome of the litigation at this time. The Company is pursuing its claims.
Shareholder Litigation in Connection with Proposed Merger
Seventeen actions have been filed against the Company, Time Warner, certain
officers and directors of the Company, Time Warner or Time Warner Entertainment
Company, L.P., and other defendants, purportedly on behalf of a class of the
Company's shareholders, in connection with the proposed merger transaction
between the Company and Time Warner (see "Business -- Recent Developments").
Sixteen of the seventeen complaints were filed in Superior Court, Fulton County,
Georgia; the other, which was filed in the Court of Chancery of the State of
Delaware in and for New Castle County, was subsequently dismissed voluntarily
without prejudice by the plaintiff. Of the complaints filed in Georgia, fourteen
were filed prior to the approval of the Mergers on September 22, 1995 by the
Boards of Directors of Time Warner and the Company (Shigala v. Turner
Broadcasting Sys., Inc., et al., Case No. E-41502; Schrank v. R.E. Turner, et
al., Case No. E-41501; Lewis, et al. v. Turner Broadcasting Sys., Inc., et al.,
Case No. E-41500; Silverstein and
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Silverstein v. Turner Broadcasting Sys., Inc., et al., Case No. E-41526; Strauss
v. Turner Broadcasting Sys., Inc., et al., Case No. E-41538; Hoffman v. Ted
Turner, et al., Case No. E-41544; Barry v. Turner Broadcasting Sys., Inc., et
al., Case No. E-41545; Mersel and Mersel v. R.E. Turner, et al., Case No.
E-41554; Friedland and Friedland v. Turner Broadcasting Sys., Inc., et al., Case
No. E-41562; Schwarzchild v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41586; Turner and Hanson v. Turner Broadcasting Sys., Inc., et al., Case No.
E-041637; H. Mark Solomon v. Turner Broadcasting Sys., Inc., et al., Case No.
E-41685; Shores v. Turner Broadcasting Sys., Inc., et al., Case No. E-41749; and
Krim and Davidson v. Turner Broadcasting Sys. Inc., et al., Case No. E-41779).
Two of the complaints filed in Georgia were filed after the Mergers were
approved (Altman v. Turner Broadcasting Sys., Inc., et al., Case No. E-43205;
and Joyce v. Tele-Communications, Inc., et al., Case No. E-43321). The plaintiff
in Altman filed a voluntary dismissal of that action without prejudice on
November 10, 1995.
On November 13, 1995, Judge Elizabeth Long, to whom all remaining actions
had been assigned, consolidated all actions except the Joyce action. On December
20, 1995, the defendants filed answers in response to the second amended
complaint (the "Second Amended Complaint") previously filed in Lewis on November
1, 1995.
On January 19, 1996, the defendants in these actions filed a Motion for
Judgment on the Pleadings on all claims asserted in the Second Amended Complaint
on the grounds that, under Georgia law, the valid grant of dissenters' rights to
the Company's shareholders with respect to the TBS Merger prohibits plaintiffs
from maintaining the claims asserted in the Second Amended Complaint. On January
31, 1996, the Court consolidated the Joyce action with the other consolidated
actions, and ordered plaintiffs to file a Consolidated Amended Complaint within
thirty days of the date of the order. Additionally, the Court stayed discovery
in these consolidated actions until the Court rules on the defendants' Motion
for Judgment on the Pleadings.
On February 29, 1996, plaintiffs filed their Third Amended Consolidated
Supplemental and Derivative Class Action Complaint (the "Third Amended
Complaint"). The Third Amended Complaint, which includes a derivative claim,
alleges, among other things, that the terms of the TBS Merger are unfair to the
Company's shareholders and that the defendants have breached or aided and
abetted the breach of fiduciary common law and statutory duties owed to the
Company's shareholders. The Third Amended Complaint further alleges that the
defendants acted fraudulently in negotiating and approving the proposed TBS
Merger, that the approval of the TBS Merger by the Company's Board of Directors
was fraudulently obtained, and that the vote of the Company's Board of Directors
approving the TBS Merger did not comply with the Company's Restated Articles of
Incorporation and Bylaws or with Georgia law. Among other relief demanded, the
Third Amended Complaint seeks damages, an injunction against the consummation of
the TBS Merger and related transactions, and an auction of the Company.
The Company intends to defend vigorously these actions.
By letter dated October 20, 1995, plaintiffs in certain of the Georgia
actions described above made a demand upon the Company to repudiate the
SportSouth Agreement and the fee authorized to be paid by the Company to one of
its advisors in connection with the Mergers as corporate waste or, absent
repudiation, to seek indemnification from any officers or directors of the
Company who authorized the challenged matters. These plaintiffs indicated that a
shareholders' derivative suit seeking injunctive relief would be filed in less
than 90 days, which claims were asserted four days later in the first amended
complaint filed in Lewis and later asserted in both the Second Amended Complaint
and the Third Amended Complaint. The Company's Board of Directors has
established a committee of directors to investigate such claims.
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 1995.
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EXECUTIVE OFFICERS OF THE COMPANY
The following table lists the executive officers of the Company, their ages
and their positions as of February 29, 1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------------ --- -----------------------------------
<S> <C> <C>
R. E. Turner.............................. 57 Chairman of the Board of Directors
and President
Christian L. Becken....................... 42 Vice President and Treasurer
William S. Ghegan......................... 47 Vice President, Controller and
Chief Accounting Officer
William H. Grumbles*...................... 46 Vice President -- Worldwide
Distribution
Elahe Hessamfar........................... 42 Vice President and Chief
Information Officer
Steven J. Heyer........................... 43 Vice President -- Advertising Sales
and Marketing
W. Thomas Johnson......................... 54 Director and Vice President -- News
Steven W. Korn............................ 42 Vice President, General Counsel and
Secretary
Terence F. McGuirk........................ 44 Director and Executive Vice
President
Wayne H. Pace............................. 49 Vice President -- Finance and Chief
Financial Officer
Scott M. Sassa............................ 37 Director and Vice
President -- Turner Entertainment
Group
Harvey W. Schiller........................ 56 Vice President -- Sports
Programming
William M. Shaw........................... 51 Vice President -- Administration
Robert Shaye.............................. 56 Director, and Chairman and Chief
Executive Officer, New Line Cinema
Corp.
Julia W. Sprunt*.......................... 42 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.
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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 and
was elected as a director in 1990. 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.
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 of Turner Entertainment
Group, Inc.
Harvey W. Schiller joined the Company in September 1994 as Vice
President -- Sports Programming. Dr. Schiller also serves as President of Turner
Sports, Inc. Prior to joining the Company, Dr. Schiller was Executive Director
of the United States Olympic Committee from 1989.
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.
Robert Shaye has served as President or Chairman and Chief Executive
Officer of New Line Cinema Corporation ("New Line") since its inception in 1967.
He currently serves as Chairman and Chief Executive Officer of New Line, a
wholly-owned subsidiary of the Company since January 28, 1994. Mr. Shaye was
elected as a director of the Company in 1994.
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.
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
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<PAGE> 23
of the common stock at December 31, 1995, is included under the caption entitled
"Investor Information" on page 55 of the 1995 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, 1995 is included under the caption entitled "Selected
Financial Data" on page 30 of the 1995 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 $3.4 billion for
the year ended December 31, 1995, a 22% increase over the same period last year.
Operating profit, defined as income before interest expense, interest income,
income taxes, and extraordinary items, increased 25% from 1994 to $358 million.
The Company realized net income of $103 million, or an $82 million increase from
1994 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 the provision for income
taxes was $173 million, or a 118% increase from 1994.
The consolidated financial statements and all related information included
in the 1995 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 1995 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 industry and, to a
lesser extent, 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, Headline News and CNNfn. At the end of 1995, homes subscribing to cable
television service in the United States reached approximately 65 million, which
represented 68% of all U.S. television households and a 4.7% increase over 1994.
Homes served by cable television are expected to grow through 2000 (the last
year for which estimates are available) and are expected to represent
approximately 71% 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.
U.S. DIRECT-TO-HOME SATELLITE INDUSTRY
The development of the direct-to-home satellite market ("DTH") offers
additional growth opportunities to the Company's Entertainment and News
Segments. By December 31, 1995, homes subscribing to DTH television service in
the United States reached approximately 4 million, which represented over 5% of
U.S. television households. Homes served by DTH are expected to grow to
approximately 10 million by 2000.
MOTION PICTURE AND TELEVISION PRODUCTION AND DISTRIBUTION INDUSTRY
The production and distribution of theatrical motion pictures, television
product and videocassettes are highly competitive businesses. Production
companies compete with numerous other motion picture and
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<PAGE> 24
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. With respect to distribution of episodic
television product, there is significant competition from independent producers
and distributors, major studios and, as a result of the elimination of the
financial interest and syndication rules, broadcast television networks.
Revenues from filmed entertainment depend in part upon general economic
conditions, but the competitive position of a producer or distributor is still
greatly affected by the quality of, and public response to, the entertainment
product it makes available to the marketplace, and this in turn depends in part
upon the marketing strategy of the producer or distributor as compared to that
of the competition as well as the quality and variety of competing products. As
a result of this competition for viewers, the Company is vulnerable to the risk
of volatile operating results in future periods.
ECONOMIC CLIMATE
The state of the U.S. economy influences the results of the Entertainment
and News Networks 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 canceled by the buyer, as
applicable. Overall, domestic advertising revenues, excluding those generated in
connection with the Goodwill Games, as applicable, totaled $1 billion in 1995,
$896 million in 1994 and $828 million in 1993, representing 30%, 32% and 43%,
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 $659 million in
1995, $556 million in 1994 and $502 million in 1993, representing 19%, 20% and
26% 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 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 1995 and 1994.
The NFL contract includes provisions to telecast a similar number of pre-season
and regular season games each year through 1997. Since 1989, TNT also has
telecast NBA regular season and playoff games. In 1994, the Company entered into
a contract with the NBA covering the 1994-1995 through 1997-1998 seasons. Under
the 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"). The Joint Venture, through a
merger, acquired Hanna-Barbera, Inc. ("Hanna-Barbera") 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 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
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<PAGE> 25
of New Line, an independent producer and distributor of motion pictures. See
Note 3 of Notes to Consolidated Financial Statements in the 1995 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 in 1996. In
1995, these entities released an aggregate of 28 theatrical films. After
theatrical release, the films will be distributed, both domestically and
internationally, by the Company primarily in the pay-per-view, home video,
premium cable network, television and other syndication and basic cable network
markets. See "Part I -- Item 1. Business -- Entertainment -- Entertainment
Production and Distribution."
When combined with existing arrangements for programming and the extensive
library of feature films, cartoons and televisions series, these 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 21 bureaus in countries outside the United States.
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 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 film production and
distribution entities, New Line and Castle Rock, have also contributed to 1995
international revenues. In 1995, international revenues, consisting of broadcast
fees (including advertising), subscription, syndication, home video, theatrical
film distribution and licensing and merchandising revenues, were $445 million or
13% of total revenue.
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. International
subscription levels grew from 15 million households at the end of 1991 to 71
million households by the end of 1995. CNN International's programming generally
is 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 international
revenues from CNN International increased from $112 million in 1994 to $131
million in 1995. 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.
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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 with CNN in newsgathering, exchange of news footage and cooperative
access to facilities. At December 31, 1995, the Company's ownership interest in
n-tv was 33.1%. For additional information concerning the acquisition of the
ownership interest in n-tv, see Note 3 of Notes to Consolidated Financial
Statements in the 1995 Annual Report to Shareholders incorporated herein by
reference.
In April 1993, the Company launched Cartoon Network Latin America, a
24-hour per day trilingual 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, government
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
and filmed entertainment. Historically, the Company has relied extensively on
debt to finance these initiatives and, as a result, has maintained a high degree
of financial leverage. This approach continued in 1995 enabling the Company to
continue its growth plans. See Note 3 and Note 6 of the Notes to Consolidated
Financial Statements in the 1995 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 1996 and beyond.
Cash provided by operations for the year ended December 31, 1995 aggregated
$210 million, including cash interest payments, net of cash interest received,
of $184 million; current net proceeds from the accounts receivable
securitization program of $222 million; and a net change in film cost and
liabilities of $32 million. Other significant sources of cash included
borrowings of $215 million under the 1993 Credit Agreement described below. Cash
was primarily utilized for the repayment of amounts outstanding under the 1993
Credit Agreement of $271 million, additions to property and equipment of $103
million, and additional investment of $14 million in the German limited
partnership, n-tv. Affecting cash provided by operations was $943 million
utilized by the Company for original entertainment and sports programming
(including $493 million for theatrical film productions, excluding promotional
and advertising costs).
See the Consolidated Statements of Cash Flows for details regarding sources
and uses of cash, Note 3 of Notes to Consolidated Financial Statements for a
detailed discussion of acquisitions, and Note 6 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 1995 Annual Report to Shareholders incorporated herein by
reference.
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<PAGE> 27
CREDIT FACILITIES AND FINANCING ACTIVITIES
The Company had approximately $2.5 billion of outstanding indebtedness at
December 31, 1995, of which $1.4 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" and, together with the 1993 Credit Agreement, the "Credit
Agreements"). The terms and covenants that govern the new facility are identical
to those provided in the 1993 Credit Agreement.
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 under the Credit Agreements ranged from 6.63% to
9.50% during the year ended December 31, 1995. The Company pays fees of 3/8 of
1% per annum on the average unborrowed portion of the total amount available for
borrowing. At December 31, 1995, the weighted average interest rate associated
with this indebtedness was 6.83%.
The Company had interest rate swap agreements having a total notional
principal amount of $480 million at December 31, 1994 with commercial banks. The
total notional amount of the contracts expired in the first quarter of 1995. 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 $2 million in 1995. The
Company continually evaluates the need to hedge against rising interest rates.
The factors which impact this decision include floating rate debt as a
percentage of the entire debt portfolio, market interest rate risk and the
impact of interest volatility on operating profit. During 1995, a 100 basis
point change in the underlying base rate of the Credit Agreements would
represent a change of approximately $15 million in interest expense. The Company
did not enter into any interest rate swap agreements during 1995 and there were
no interest rate swap agreements outstanding at December 31, 1995.
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, 1995, $750 million of Debt
Securities, comprised of $300 million of the Company's 8 3/8% Senior Notes (the
"Notes"), $250 million of 7.4% Senior Notes (the "Senior Notes") and $200
million of 8.4% Senior Debentures (the "Senior Debentures", and together with
the Senior Notes, the "Securities"), had been issued pursuant to the Shelf
Registration.
The Credit Agreements contain restrictive covenants (including, 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 Credit Agreements provide for acceleration of the indebtedness thereunder in
the event of a change of control. The Notes, the Securities, and
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<PAGE> 28
the Company's zero coupon subordinated convertible notes due 2007 also 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 Notes and
the Securities, 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.
On January 4, 1996, the Company called for redemption on February 5, 1996
all of the convertible subordinated debentures of a wholly-owned subsidiary. Of
the $29 million debentures outstanding, substantially all were converted into
the Company's Class B Common Stock at $17.51 per share or 57.11 shares of Class
B Common Stock for each $1,000 face amount of debentures. The conversion
resulted in the issuance of approximately 1.7 million shares of Class B Common
Stock.
Scheduled principal payments for all outstanding debt for 1996 total
approximately $1.5 million, the majority of which relates to capital leases and
other debt.
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 December 31, 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 $14 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 described above. Under the agreement, which expires in May 1996 but
is intended to be renewed for another one-year term, the Company performs
collection and administrative responsibilities as agent for the purchaser of the
related purchased receivables. See Note 11 of Notes to Consolidated Financial
Statements in the 1995 Annual Report to Shareholders incorporated herein by
reference.
INTERNATIONAL CURRENCY CONTRACTS
The Company is exposed to limited financial risk as a result of
international currency fluctuations due to its growing international operations.
The Company has only limited involvement with international forward exchange
contracts with commercial banks to mitigate the effect of potentially adverse
changes in exchange rates. These financial instruments are designed to minimize
exposure and reduce risk from exchange rate fluctuations in the regular course
of business. Gains and losses on forward exchange contracts which are designated
and effective as hedges of exposures from firm currency commitments are deferred
and recognized as adjustments to the bases of those assets or liabilities. Gains
and losses on forward exchange contracts which do not qualify as hedges of
exposures from firm currency commitments are recognized in income as incurred.
Such amounts effectively offset gains and losses on the associated international
currency assets or liabilities. At December 31, 1995, the Company had forward
exchange contracts for the purchase of approximately $29 million of
international currencies at fixed rates, primarily in Canadian Dollars, Pounds
Sterling, and European Currency Units. All of these contracts, which mature by
September 1996, qualify for hedge accounting treatment. For the years ended
December 31, 1995 and 1994, both realized and unrealized gains and losses on
international forward exchange contracts were immaterial. As such, the carrying
value of international currency forward exchange contracts approximated fair
value. The Company has exposure to credit risk but does not anticipate
nonperformance by the counterparties to these agreements.
Based on the international forward exchange contracts outstanding at
December 31, 1995, each 5% devaluation of the U.S. dollar as compared to the
level of international exchange rates for currencies under contract at December
31, 1995 would result in approximately $1.5 million of unrealized gains on
international currency purchases. Conversely, a 5% appreciation of the U.S.
dollar would result in $1.5 million of unrealized
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losses. Consistent with the nature of the economic hedge provided by such
international forward exchange contracts, such gains or losses would be offset
by corresponding decreases or increases, respectively, in the dollar value of
the associated underlying asset or liability.
CAPITAL RESOURCES AND COMMITMENTS
During 1996, the Company anticipates making cash expenditures of
approximately $1.2 billion for original entertainment programming (excluding
promotional and advertising costs on theatrical film product), approximately
$275 million for sports programming, primarily rights fees and approximately
$155 million for licensed programming. Also, during 1996, the Company expects to
make total expenditures of approximately $145 million for additional or
replacement property and equipment. Of the anticipated programming and capital
expenditures described above, firm commitments exist for approximately $760
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, film
suppliers and additional borrowings.
RESULTS OF OPERATIONS -- 1995 VS. 1994
Entertainment Segment
Entertainment Segment revenue increased $502 million, or 25%, to $2.504
billion. For the entertainment networks, advertising revenue, excluding the
effect of the 1994 Goodwill Games, increased $113 million, or 19%, to $721
million due to higher viewership and an increase in the amount charged per
thousand homes by TBS Superstation, TNT and Cartoon Network, and an increase in
sports revenue associated with the coverage of the NBA on TBS Superstation and
the NBA and NFL on TNT. Subscription revenues increased $85 million, or 24%, to
$440 million, primarily through an increase in rates and a higher number of
subscribers at TNT, TCM and Cartoon Network. In the production and distribution
companies, syndication revenue increased $214 million to $468 million due to the
off-network syndication of Castle Rock's "Seinfeld" and premium cable and
pay-per-view revenue generated from New Line's "Dumb & Dumber" and "The Mask."
Home video revenue increased $46 million, or 12%, to $440 million. Increases in
home video revenue related to New Line's home video release of "The Mask," "Dumb
& Dumber" and "Mortal Kombat" were partially offset by higher 1994 revenues
associated with the Company's motion picture library and animation product.
Theatrical revenue increased $45 million, or 20%, to $271 million, due primarily
to an increase in the number of theatrical releases in 1995 at Castle Rock,
including "The American President," and the success of theatrical releases by
New Line, including "Dumb & Dumber," "Mortal Kombat," and "Seven." Remaining
increases in other ancillary markets for the production and distribution
companies were wholly offset by revenues generated in 1994 by the 1994 Goodwill
Games.
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 increased $81
million, or 68%, to $201 million. The increase included a $119 million, or 72%,
improvement in operating profits at the entertainment networks. This improvement
in profitability was due to increased advertising and subscription revenue as
described above, primarily at TBS Superstation, TNT and Cartoon Network, offset
by increased entertainment and sports programming expenses, excluding costs
related to the 1994 Winter Olympics. In addition, Cartoon Latin America, TNT &
Cartoon Network Europe and TCM yielded significantly improved results, with
operating losses decreasing by a combined $12 million due to advertising and
subscription revenue increases. This improvement was offset by increased
operating losses of $11 million at TNT & Cartoon Network Asia, which completed
its first full year of operations in 1995. Operating results for the
international networks have been and will continue to be impacted by the effect
of international advertising markets and, to some extent, by subscriber
penetration. At this time, the Company cannot predict the impact these external
market factors will continue to have on future operations. Reduced losses of $26
million as a result of the prior year staging of the 1994 Goodwill Games and
costs related to
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TNT's telecast of the 1994 Winter Olympics of $32 million account for the
remainder of the increase for the entertainment networks. Increases in operating
profits for the entertainment networks were somewhat offset by increased losses
in the Company's production and distribution units, where operating losses
increased $38 million to $85 million. The increase in operating losses was
primarily due to disappointing results associated with theatrical releases,
notwithstanding the success of certain theatrical releases by New Line mentioned
above, lower results for publishing and interactive products, as well as
increased costs associated with building domestic and international production
and distribution infrastructure, which more than offset the associated revenue
gains mentioned above. See "Motion Picture and Television Production and
Distribution Industry" for a discussion of the risk factors associated with this
industry.
News Segment
News Segment revenue increased $98 million, or 15%, to $765 million. The
increase was due primarily to a $41 million, or 14%, increase in domestic
advertising revenue principally as a result of higher viewership from O.J.
Simpson trial coverage and a $29 million increase in domestic subscription
revenue due to an increase in rates and the domestic availability of CNN
International. The remaining increase in overall revenue was primarily generated
at CNN International, where international revenue increased $18 million, or 16%,
to $131 million.
Operating profit for the News Segment increased $37 million, or 16%, to
$265 million. The revenue increases discussed above were somewhat offset by
increased domestic newsgathering expenses related to O.J. Simpson trial coverage
and the Oklahoma City bombing and increased international newsgathering costs
related primarily to events in Bosnia and Russia.
Other Segment
Revenue increased $43 million, or 26%, to $207 million due primarily to
increased revenues from the Braves and WCW. Braves revenue increased $16 million
due to increased television and radio broadcast rights and increased attendance
revenue as a result of a greater number of home games in comparison to the
strike-shortened 1994 season. WCW revenue increased $15 million due primarily to
increased television syndication from pay-per-view events as well as home video
sales and licensing and merchandising activities. Operating losses for the
segment increased $6 million, to $77 million, as improved operations at the
Braves and WCW were offset by increased information technology and other
infrastructure spending in line with corporate growth.
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION
The Company's share of operating losses from unconsolidated entities
decreased $4 million to $6 million. The Atlanta Hawks' performance improved $2
million as a result of league expansion fees partially offset by increased team
payroll costs. The remaining decrease in losses related primarily to increased
profits at SportSouth Network.
In May 1995, the Company sold an undivided percentage ownership interest in
a designated domestic cable and advertising accounts receivable pool of
approximately $300 million. The proceeds were used to repay amounts outstanding
under the Company's bank credit facilities. The Company recognized costs of $14
million for the year in connection with this securitization program. The ongoing
costs of the securitization program are anticipated to be less than those the
Company would have otherwise incurred under the bank credit facilities. See Note
11 of Notes to Consolidated Financial Statements in the 1995 Annual Report to
Shareholders incorporated herein by reference.
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.
The Company has entered into an Amended and Restated Agreement and Plan of
Merger dated as of September 22, 1995 with Time Warner pursuant to which the
Company and Time Warner will each become a
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wholly-owned subsidiary of a new Time Warner holding company. For the year, the
Company incurred approximately $10 million of expenses related to the proposed
merger with Time Warner. See Note 2 of Notes to Consolidated Financial
Statements in the 1995 Annual Report to Shareholders incorporated herein by
reference.
Consolidated interest expense, net of interest income decreased
approximately $23 million, primarily due to a net reduction in the Company's
effective interest rate as a result of the expiration of interest rate swap
agreements that were in existence in 1994.
The 1994 extraordinary item represents $25 million, net of tax benefits,
associated with the early redemption of the Company's 12% Senior Subordinated
Debentures (the "Subordinated Debentures") in 1994. See Note 6 of Notes to the
Consolidated Financial Statements in the 1995 Annual Report to Shareholders
incorporated herein by reference.
As a result of the information discussed, the Company reported net income
of $103 million in 1995 ($0.36 net income per common share and common share
equivalent). This compares to net income of $21 million in 1994 ($0.08 net
income per common share and common share equivalent).
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 HB 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 Superstation 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 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, TCM and TNT & Cartoon Network Asia).
These amounts were substantially offset by a $29 million decrease in other
sports programming expense, primarily NFL programming, 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.
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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, $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.
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 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.
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 Joint Venture.
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).
NEW ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" ("FAS 121"). This
Statement established accounting standards for the impairment of long-lived
assets, certain identifiable intangibles, and goodwill related to those assets
to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed. FAS 121 requires that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. In performing the review for
recoverability, the Company must estimate the future cash flows expected to
result from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and use should be based on the fair value of the asset.
In addition, FAS 121 requires that long-lived assets and certain
identifiable intangibles to be disposed of be reported at the lower of carrying
amount or fair value less cost to sell, except for assets that are covered by
APB Opinion No. 30, "Reporting the Results of Operations -- Reporting the
Effects of Disposal of a Segment of a Business and Extraordinary, Unusual, and
Infrequently Occurring Events and Transactions." Assets that are covered by
Opinion 30 will continue to be reported at the lower of carrying amount or net
realizable value.
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The Company will adopt FAS 121 January 1, 1996. Based on analyses performed by
the Company as of December 31, 1995, this standard is not expected to have a
material impact on the Company's financial results.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This Statement encourages the adoption of a
fair-value-based method of accounting for stock-based compensation plans in
place of the intrinsic-value-based method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), for
all arrangements under which employees receive shares of stock or other equity
instruments of the employer, or the employer incurs liabilities to employees
based on the price of its stock. In addition, FAS 123, establishes fair value as
the measurement basis for transactions in which an entity acquires goods or
services from nonemployees in exchange for equity instruments. The Statement
allows entities to choose to adopt the method defined in FAS 123 or continue to
apply the method prescribed by APB 25 while providing disclosure of pro forma
amounts representing the effect of fair-value-based accounting. The Company will
adopt FAS 123 January 1, 1996. It is the Company's intention, as permitted by
FAS 123, to continue to apply the measurement provisions of APB 25 and provide
the required pro forma disclosures.
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 1995 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, 1995.
Consolidated Balance Sheets at December 31, 1995 and 1994.
Consolidated Statements of Changes in Stockholders' Equity (Deficit) for
the three years ended December 31, 1995.
Consolidated Statements of Cash Flows for the three years ended December
31, 1995.
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.
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 1996 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 directors of the Company is set forth
under the caption "Compensation of Directors" in the Company's 1996 Proxy
Statement, and is incorporated herein by reference. Information regarding
compensation of officers of the Company is set forth under the caption
"Executive Compensation" in the Company's 1996 Proxy Statement, and is
incorporated herein by reference.
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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 1996 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 1996 Proxy Statement, and is incorporated
herein by reference.
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 1995
Annual Report to Shareholders are incorporated herein by reference (see Exhibit
13).
(a)(2) Financial Statement Schedule for the three years ended December 31, 1995
<TABLE>
<CAPTION>
SCHEDULE PAGE
NUMBER DESCRIPTION NUMBER
- -------- ---------------------------------------------------------------------------- ------
<C> <S> <C>
VIII Valuation and qualifying accounts and reserves.............................. 42
</TABLE>
The report of the Company's independent accountants with respect to the
above-referenced financial statement schedule appears on page 41 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
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995,
among the Company, Time Warner Inc., TW Inc., Time Warner Acquisition Corp. and TW
Acquisition Corp. (filed as Exhibit 2 to the Company's Form 8-K dated December 1,
1995, and incorporated herein by reference).
2.2 -- Stock Purchase Agreement, dated as of September 22, 1995, between the Company and
LMC Southeast Sports, Inc. (filed as Exhibit 99.2 to the Company's Form 8-K dated
September 22, 1995, 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"), and incorporated herein by reference).
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).
</TABLE>
34
<PAGE> 35
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
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).
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 7.4% 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 8.4% 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, to the 1993 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).
4.4.6 -- Form of Amendment No. 4, dated as of December 5, 1994, to the 1993 Credit
Agreement (filed as Exhibit 4.4.6 to the Company's Form 10-Q for the fiscal
quarter ended March 31, 1995, and incorporated herein by reference).
</TABLE>
35
<PAGE> 36
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
4.7 -- Credit Agreement, dated as of September 7, 1994 (the "1994 Credit Agreement"),
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).
4.7.1 -- Form of Amendment No. 1, dated as of December 5, 1994, to the 1994 Credit
Agreement (filed as Exhibit 4.7.1 to the Company's Form 10-Q for the fiscal
quarter ended March 31, 1995, and incorporated herein by reference).
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 -- 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).*
10.3.1 -- 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).*
10.3.2 -- 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).*
10.4 -- 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 (Registration No. 2-97132) filed with the Commission on June 19, 1985,
and incorporated herein by reference).
10.5 -- 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 (the "1987 Form 10-K"), and incorporated herein by
reference).
10.6 -- 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 1987 Form 10-K, and incorporated herein by
reference).
10.7 -- 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 1987 Form 10-K , and
incorporated herein by reference).
10.8 -- 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).
10.9 -- 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).*
10.10 -- Turner Broadcasting System, Inc. Supplemental Benefit Plan (filed as Exhibit 10.48
to the Company's Form 10-K for the fiscal year ended December 31, 1992, and
incorporated herein by reference).*
</TABLE>
36
<PAGE> 37
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- ----------------------------------------------------------------------------------
<C> <C> <S>
10.11 -- Turner Broadcasting System, Inc. Supplemental Executive Retirement Plan (filed as
Exhibit 10.49 to the Company's Form 10-K for the fiscal year ended December 31,
1992, and incorporated herein by reference).*
10.12 -- Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan
(the "1993 Stock Option Plan") (filed as Exhibit 10.38 to the Second Quarter 1994
Form 10-Q, and incorporated herein by reference).*
10.12.1 -- Amendment No. 1 to the 1993 Stock Option Plan (filed as Exhibit 10.33.1 to the
Company's Form 10-Q for the fiscal quarter ended June 30, 1995 (the "Second
Quarter 1995 Form 10-Q"), and incorporated herein by reference).*
10.13 -- 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 Company's Form 10-K for the fiscal year ended December 31,
1993 (the "1993 Form 10-K"), and incorporated herein by reference).*
10.13.1 -- Amendment No. 2, dated as of May 24, 1995, to the Employment Agreement, dated as
of December 20, 1993, by and between the Company and W. Thomas Johnson (filed as
Exhibit 10.34.1 to the Second Quarter 1995 Form 10-Q, and incorporated herein by
reference).*
10.14 -- 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).*
10.14.1 -- Amendment No. 2, dated as of May 24, 1995, to the Employment Agreement, dated as
of December 20, 1993, by and between the Company and Terence F. McGuirk (filed as
Exhibit 10.35.1 to the Second Quarter 1995 Form 10-Q, and incorporated herein by
reference).*
10.15 -- 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).*
10.16 -- Employment Agreement, dated as of January 28, 1994, by and between New Line Cinema
Corporation and Robert Shaye (filed as Exhibit 10.37 to the Company's Form 10-K
for the fiscal year ended December 31, 1994, and incorporated herein by
reference).*
10.16.1 -- Amendment, dated as of July 17, 1995, to the Employment Agreement, dated as of
January 28, 1994, by and between New Line Cinema Corporation and Robert Shaye
(filed as Exhibit 10.37.1 to the Company's Form 10-Q for the fiscal quarter ended
September 30, 1995, and incorporated herein by reference).*
10.17 -- 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 1995 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 LLP.
27 -- Financial Data Schedule (for SEC use only).
</TABLE>
- ---------------
* Management contract or compensatory plan or arrangement.
37
<PAGE> 38
(b) Reports on Form 8-K
On October 5, 1995, the Company filed a Current Report on Form 8-K
announcing that on September 22, 1995, the Board of Directors of the Company
approved the merger of the Company with a wholly-owned subsidiary of Time Warner
Inc. and thereafter, the Company, Time Warner Inc. ("Time Warner") and Time
Warner Acquisition Corp., a wholly-owned subsidiary of Time Warner, executed an
Agreement and Plan of Merger, dated as of September 22, 1995.
On December 19, 1995, the Company filed a Current Report on Form 8-K
announcing that on December 1, 1995, the Company, Time Warner, TW Inc. ("New
Time Warner"), Time Warner Acquisition Corp. and TW Acquisition Corp. entered
into an Amended and Restated Agreement and Plan of Merger, dated as of September
22, 1995, which amends the original merger agreement to provide for a
transaction in which each of the Company and Time Warner will become a
wholly-owned subsidiary of a new holding company, New Time Warner, through two
separate mergers.
38
<PAGE> 39
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 21, 1996
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> <C> <C>
Chairman of the Board of
/s/ R. E. TURNER Directors and President (Chief
- --------------------------------------------- Executive Officer) March 21, 1996
R. E. Turner
/s/ WAYNE H. PACE Vice President -- Finance
- --------------------------------------------- (Chief Financial Officer) March 21, 1996
Wayne H. Pace
/s/ WILLIAM S. GHEGAN Vice President and Controller
- --------------------------------------------- (Chief Accounting Officer) March 21, 1996
William S. Ghegan
/s/ HENRY L. AARON Director March 21, 1996
- ---------------------------------------------
Henry L. Aaron
/s/ W. THOMAS JOHNSON Director March 21, 1996
- ---------------------------------------------
W. Thomas Johnson
/s/ RUBYE M. LUCAS Director March 21, 1996
- ---------------------------------------------
Rubye M. Lucas
/s/ TERENCE F. MCGUIRK Director March 21, 1996
- ---------------------------------------------
Terence F. McGuirk
/s/ BRIAN L. ROBERTS Director March 21, 1996
- ---------------------------------------------
Brian L. Roberts
</TABLE>
39
<PAGE> 40
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ------------------------------- ---------------
<S> <C> <C>
/s/ SCOTT M. SASSA Director March 21, 1996
- ---------------------------------------------
Scott M. Sassa
/s/ ROBERT SHAYE Director March 21, 1996
- ---------------------------------------------
Robert Shaye
/s/ PETER R. BARTON Director March 21, 1996
- ---------------------------------------------
Peter R. Barton
/s/ JEFFREY L. BEWKES Director March 21, 1996
- ---------------------------------------------
Jeffrey L. Bewkes
/s/ JOSEPH J. COLLINS Director March 21, 1996
- ---------------------------------------------
Joseph J. Collins
/s/ GERALD M. LEVIN Director March 21, 1996
- ---------------------------------------------
Gerald M. Levin
Director
- ---------------------------------------------
John C. Malone
/s/ TIMOTHY P. NEHER Director March 21, 1996
- ---------------------------------------------
Timothy P. Neher
/s/ FRED A. VIERRA Director March 21, 1996
- ---------------------------------------------
Fred A. Vierra
</TABLE>
40
<PAGE> 41
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 5, 1996 appearing in the 1995 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 5, 1996
41
<PAGE> 42
SCHEDULE VIII
TURNER BROADCASTING SYSTEM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
(IN THOUSANDS)
<TABLE>
<CAPTION>
RECOVERIES
BALANCE AT CHARGED TO ON ACCOUNTS BALANCE
ALLOWANCE FOR DOUBTFUL BEGINNING COSTS AND PREVIOUSLY AT END
ACCOUNTS RECEIVABLE OF PERIOD EXPENSES WRITTEN OFF WRITE-OFFS OTHER OF PERIOD
- ------------------------------------- ---------- ---------- ----------- ---------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
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
======== ======== ========= ======== ====== =======
Year ended December 31, 1995......... $ 42,523 $ 13,645 $ 449 $ (11,527) $1,046 $ 46,136
======== ======== ========= ======== ====== =======
</TABLE>
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE
VALUATION ALLOWANCE ON BEGINNING COSTS AND AT END
DEFERRED TAX ASSETS OF PERIOD EXPENSES ADJUSTMENTS OTHER OF PERIOD
- ------------------------------------ ---------- ---------- ----------- ------ ---------
<S> <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
======== ======== ========= ====== =======
Year ended December 31, 1995........ $5,223 $ 0 $ 3,508 $ 0 $ 1,715
======== ======== ========= ====== =======
</TABLE>
42
<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>
TWELVE MONTHS ENDED
DECEMBER 31, 1995
------------------
<S> <C>
Net income applicable to common stock $102,681
========
Weighted average number of shares outstanding during the period 206,049
Add: Common equivalent shares issuable assuming conversion of
Class C Convertible Preferred Stock 74,382
Shares issuable upon exercise of stock options 16,932
Subtract: Shares which would have been purchased with proceeds
from exercise of such stock options (13,004)
--------
Weighted average number of common stock, common stock
equivalents and converted shares outstanding 284,359
========
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 216,029
========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.36
========
</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>
TWELVE MONTHS ENDED
DECEMBER 31, 1995
-------------------
<S> <C>
Net income applicable to common stock $102,681
Add: Interest expense on zero coupon subordinated convertible
notes due 2007 18,218
Interest expense on 6.5% convertible notes 1,891
Subtract: Additional income taxes (8,180)
--------
Adjusted net income applicable to common stock $114,610
========
Primary weighted average number of shares outstanding 284,359
Add: Common equivalent shares issuable assuming conversion of
convertible notes due 2007 7,440
Change in shares due to options assumed converted using the
end of period market value 1,125
Common equivalent shares issuable assuming conversion of 6.5%
convertible notes 1,661
--------
Weighted average number of common stock, common stock
equivalents and convertible shares, assuming full dilution 294,585
========
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 226,255
========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.39
========
</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 13
<TABLE>
<CAPTION>
Selected Operating Data
Turner Broadcasting System, Inc.
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Advertising Revenue in thousands (1)
TBS Superstation $423,240 $356,021 $339,803 $313,068 $287,483
Turner Network Television 268,055 233,860 210,084 184,159 137,993
Cartoon Network 22,264 14,073 5,651 971 -
CNN 239,318 206,475 191,572 179,023 171,844
Headline News 90,195 82,406 77,165 69,087 64,822
CNN International 53,154 43,905 34,136 25,983 13,222
International Entertainment
Networks (2) 9,607 5,261 1,037 52 -
Subscription Revenue in thousands (1)
Turner Network Television $360,244 $308,344 $296,319 $260,048 $231,933
Cartoon Network 23,600 16,778 6,307 5 -
Turner Classic Movies 18,384 3,611 - - -
CNN/Headline News 247,375 227,646 199,165 173,457 154,213
International Entertainment
Networks (2) 37,847 26,759 16,178 9,524 2,348
U.S. Coverage Households in thousands (3)(4)
TBS Superstation 67,149 62,089 61,525 60,032 57,457
Turner Network Television 66,059 60,824 60,876 58,312 55,641
Cartoon Network 22,422 12,060 8,861 - -
Turner Classic Movies (5) 7,818 2,527 - - -
CNN 67,244 62,738 62,420 61,172 58,877
Headline News 59,326 54,191 54,219 51,354 48,223
CNNI/CNNfn (6) 5,299 - - - -
International Coverage Households in
thousands (5)
CNN International (7) 71,381 57,392 45,100 34,700 15,500
TNT Latin America 4,666 3,200 1,462 929 142
Cartoon Network Latin America 5,656 3,531 997 - -
TNT & Cartoon Network Europe 29,413 21,956 16,660 - -
TNT & Cartoon Network Asia 2,222 768 - - -
Average U.S. Rating/Average U.S. Viewing
Households in thousands (4)(8)
TBS Superstation 1.2/762 1.2/770 1.3/815 1.4/803 1.4/793
Turner Network Television 1.0/658 0.9/568 0.9/552 1.0/560 0.9/509
Cartoon Network 1.0/178 0.8/90 0.9/56 - -
CNN 0.9/580(9) 0.6/361 0.6/369 0.7/400 1.2/685(10)
Headline News 0.3/182 0.3/166 0.3/181 0.3/172 0.4/182(10)
Gross Domestic Box Office Receipts in
thousands (5)(11) $399,571 $379,717 $10,000 - -
Number of Releases
New Line Cinema 19 22 - - -
Castle Rock Entertainment 8 4 - - -
Turner Pictures Worldwide 1 - 1 - -
</TABLE>
(1) Certain amounts have been reclassified to conform to the current year
presentation.
(2) Consists of TNT Latin America, Cartoon Network 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) CNNfn is broadcast daily from 7:00 am to 7:00 pm EST on the domestic
CNN International feed.
(7) An additional 30 million, 27 million and 29 million homes received CNN
International at least five hours per day in 1995, 1994 and 1993,
respectively.
(8) 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.
(9) Increased average U.S. rating and average U.S. viewing households
primarily due to the O.J. Simpson trial coverage.
(10) Increased average U.S. rating and average U.S. viewing households
primarily due to the Persian Gulf War coverage.
(11) Gross domestic box office receipts represents amounts received at the
box office attributable to current year releases.
28
<PAGE> 2
INDEX TO FINANCIALS
CONTENTS
Selected Financial Data 30
Consolidated Statements of Operations 31
Consolidated Balance Sheets 32
Consolidated Statements of Changes
in Stockholders' Equity (Deficit) 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 35
Report of Independent Accountants 53
Management's Responsibility
for Financial Statements 53
29
<PAGE> 3
Selected Financial Data
Turner Broadcasting System, Inc.
The following table summarizes certain consolidated financial data of Turner
Broadcasting System, Inc. (the "Company") 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 1995
Turner Broadcasting System, Inc. Form 10-K.
<TABLE>
Year ended December 31,
in thousands, except per share data and
current ratio 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Statement of Operations Data
Revenue $3,437,350 $2,809,125 $1,921,606 $1,769,892 $1,480,243
Operating profit (1) 358,372 287,642 302,140 289,382 297,121
Interest expense, net of interest income 185,275 208,318 181,571 189,637 196,139
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes 102,681 46,153 72,445 34,061 42,936
Extraordinary items (2) - (24,996) (10,693) 43,561 43,000
Cumulative effect of a change in
accounting for income taxes (3) - - (306,000) - -
Net income (loss) 102,681 21,157 (244,248) 77,622 85,936
Earnings (loss) per common share
Income before extraordinary
items and the cumulative
effect of a change in
accounting for income taxes 0.36 0.16 0.27 0.13 0.06
Net income (loss) 0.36 0.08 (0.92) 0.30 0.24
Balance Sheet Data (at end of year)
Working capital $ 553,682 $ 642,001 $ 660,585 $ 475,397 $ 378,680
Current ratio 1.66 1.99 2.60 2.26 2.09
Total assets 4,395,400 4,072,545 3,244,862 2,523,573 2,397,227
Long-term debt, less current
portion (4) 2,479,770 2,517,748 2,294,557 1,709,051 1,968,937
Redeemable preferred stock (5) - - - - 4,855
Cash dividends (6) 19,632 19,604 18,407 13,589 5,356
Stockholders' equity (deficit) 437,679 343,731 (1,103) 233,101 (37,603)
Total capitalization (7) 2,917,449 2,861,479 2,293,454 1,942,152 1,936,189
</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
$16,946,000 loss on early extinguishments of indebtedness, net of income tax
benefits of $15,981,000 and $6,253,000, respectively. The amounts in 1992 and
1991 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) See Note 6 of Notes to Consolidated Financial Statements for information
regarding repayment terms for outstanding long-term debt.
(5) The amount represents the accreted value of the Class B Cumulative
Preferred Stock outstanding at year end. See Note 10 of Notes to Consolidated
Financial Statements.
(6) Amounts in 1992 and 1991 include dividends on Class B Cumulative Preferred
Stock. See Note 10 of Notes to Consolidated Financial Statements for additional
information.
(7) Total capitalization is defined as stockholders' equity (deficit),
long-term debt less current portion and Class B Cumulative Preferred Stock.
30
<PAGE> 4
Consolidated Statements of Operations
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
Year ended December 31,
in thousands, except per share data 1995 1994 1993
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue
Unaffiliated $2,928,092 $2,388,057 $1,536,112
Affiliated 509,258 421,068 385,494
---------- ---------- ----------
3,437,350 2,809,125 1,921,606
---------- ---------- ----------
Cost of operations 2,080,581 1,768,104 1,023,045
Selling, general and administrative 888,661 706,379 537,108
Equity in loss of unconsolidated
entities 5,750 10,001 20,040
Costs of accounts receivable
securitization program 14,297 - -
Gain on sale of equity investment - (21,746) -
Time Warner merger costs 9,749 - -
Depreciation of property and
equipment and amortization of
intangible assets 79,940 58,745 39,273
Interest expense, net of interest
income 185,275 208,318 181,571
---------- ---------- ----------
3,264,253 2,729,801 1,801,037
---------- ---------- ----------
Income before provision for income
taxes, extraordinary items and
the cumulative effect of a change
in accounting for income taxes 173,097 79,324 120,569
Provision for income taxes 70,416 33,171 48,124
---------- ---------- ----------
Income before extraordinary items and
the cumulative effect of a change in
accounting for income taxes 102,681 46,153 72,445
Extraordinary items - (24,996) (10,693)
---------- ---------- ----------
Income before the cumulative effect
of a change in accounting for
income taxes 102,681 21,157 61,752
Cumulative effect of a change in
accounting for income taxes - - (306,000)
---------- ---------- ----------
Net income (loss) $ 102,681 $ 21,157 $ (244,248)
========== ========== ==========
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 $ 0.36 $ 0.16 $ 0.27
Extraordinary items - (0.08) (0.03)
Cumulative effect of a change
in accounting for income
taxes - - (1.16)
---------- ---------- ----------
Net income (loss) $ 0.36 $ 0.08 $ (0.92)
========== ========== ==========
Weighted average number of common
shares outstanding, including
conversion of common stock
equivalents 284,359 281,310 264,443
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
31
<PAGE> 5
Consolidated Balance Sheets
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
December 31,
in thousands, except share data 1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $ 85,185 $ 52,895
Accounts receivable, less allowance of
$38,503 and $31,862
Unaffiliated 464,923 567,404
Affiliated 92,657 103,432
Film costs 567,031 446,355
Installment contracts receivable, less
allowance of $7,633 and $10,661 47,928 46,806
Prepaid expense and other current assets 135,597 71,510
---------- ----------
Total current assets 1,393,321 1,288,402
Film costs, less current portion 1,936,565 1,893,069
Property and equipment, less accumulated
depreciation 358,528 308,960
Goodwill and other intangible assets 427,611 409,468
Other assets 279,375 172,646
---------- ----------
Total assets $4,395,400 $4,072,545
========== ==========
Liabilities and Stockholders' Equity
Accounts payable $ 64,704 $ 49,036
Accrued expenses 292,167 249,813
Deferred income 83,772 108,122
Income taxes payable 63,693 61,376
Participants' share and royalties payable 107,254 58,417
Interest payable 33,011 37,338
Film contracts payable 69,802 40,252
Current portion of long-term debt 1,543 1,345
Other current liabilities 123,693 40,702
---------- ----------
Total current liabilities 839,639 646,401
Long-term debt, less current portion 2,479,770 2,517,748
Deferred income taxes 421,685 385,731
Other long-term liabilities 216,627 178,934
---------- ----------
Total liabilities 3,957,721 3,728,814
---------- ----------
Commitments and contingencies
Stockholders' equity
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 137,982,831 and
137,424,549 shares 8,624 8,589
Capital in excess of par value 1,084,181 1,073,317
Accumulated deficit (919,835) (1,002,884)
---------- ----------
Total stockholders' equity 437,679 343,731
---------- ----------
Total liabilities and
stockholders' equity $4,395,400 $4,072,545
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
32
<PAGE> 6
Consolidated Statements of Changes in Stockholders' Equity (Deficit)
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
December 31,
1995 1994 1993
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 137,424,549 8,589 120,887,672 7,555 119,845,121 7,490
Issuance of Class B
Common Stock - - 23,903 1 287,930 18
Exercise of stock options 415,992 26 118,315 8 754,621 47
Issuance of stock related
to New Line Merger 142,290 9 16,394,659 1,025 - -
Balance at end of year 137,982,831 8,624 137,424,549 8,589 120,887,672 7,555
=========== --------- =========== ------- =========== ----------
Capital in excess of par
value
Balance at beginning of
year 1,073,317 731,042 702,791
Issuance of Class B
Common
Stock - 599 7,449
Exercise of stock
options 5,657 1,266 7,443
Tax benefit from exercise
of stock options 2,263 459 13,359
Issuance of stock related
to New Line Merger 2,944 339,951 -
---------- ---------- ----------
Balance at end of year 1,084,181 1,073,317 731,042
---------- ---------- ----------
Accumulated deficit
Balance at beginning of
year (1,002,884) (1,004,409) (741,889)
Net income (loss) 102,681 21,157 (244,248)
Cash dividends (19,632) (19,604) (18,407)
Other - (28) 135
---------- ---------- ----------
Balance at end of year (919,835) (1,002,884) (1,004,409)
---------- ---------- ----------
Total stockholders' equity
(deficit) $ 437,679 $ 343,731 $ (1,103)
========== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
33
<PAGE> 7
Consolidated Statements of Cash Flows
Turner Broadcasting System, Inc.
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
<S> <C> <C> <C>
Cash provided by (used for) operations
Net income (loss) $ 102,681 $ 21,157 $ (244,248)
Adjustments to net income (loss)
Equity in loss of unconsolidated entities 5,750 10,001 20,040
Gain on sale of equity investment - (21,746) -
Depreciation of property and equipment and
amortization of intangible assets 79,940 58,745 39,273
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) decrease in accounts
receivable - current 113,256 (126,892) (30,914)
Net decrease in installment contracts
receivable 4,416 22,863 15,246
Change in film costs and related liabilities,
net
Purchased program rights 85,716 78,285 74,398
Produced programming (108,454) (182,764) (38,375)
Licensed program rights (9,468) 1,514 7,223
Net (increase) decrease in accounts
receivable - noncurrent (122,133) 16,204 (90,063)
Net increase (decrease) in interest payable (4,327) 4,967 12,321
Net increase in income taxes payable 2,317 32,568 12,259
Net increase in accounts payable and
accrued expenses 27,149 52,178 2,376
Net increase (decrease) in deferred tax
liability (6,300) (46,049) 13,377
Other, net 39,443 (35,470) 36,463
--------- ---------- ----------
Net cash provided by (used for) operations 209,986 (73,462) 152,322
Cash provided by (used for) investing
activities
Acquisitions and advances to
unconsolidated entities (13,766) (156,654) (592,275)
Distributions from unconsolidated
entities 8,705 - -
Additions to property and
equipment (103,265) (109,236) (50,570)
Net proceeds from sale of assets - 107,978 -
--------- ---------- ----------
Net cash used for investing activities (108,326) (157,912) (642,845)
Cash provided by (used for) financing
activities
Borrowings 215,000 1,299,600 1,522,372
Payments of debt (271,378) (1,127,371) (968,008)
Debt issue costs (106) (8,735) (16,322)
Premium paid on early extinguishment of
debt - (24,300) -
Payments of cash dividends (19,632) (19,604) (18,407)
Proceeds from exercise of stock options 6,746 1,821 7,490
Net cash provided by (used for) financing
activities (69,370) 121,411 527,125
--------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents 32,290 (109,963) 36,602
Cash and cash equivalents at beginning of
period 52,895 162,858 126,256
--------- ---------- ----------
Cash and cash equivalents at end of period $ 85,185 $ 52,895 $ 162,858
========= ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
34
<PAGE> 8
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 1995 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 $74,379,000 and $33,199,000 at December
31, 1995 and 1994, 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. 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, prepaid 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 and
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.
Prepaid 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 original television programming, are
generally charged to cost of operations when each production is aired or
syndicated. Prepaid 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. Licensed film contracts are
recorded as assets 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. Accordingly,
licensed program rights are amortized to expense monthly at the greater of the
straight-line rate or a rate based on actual usage. The portion of licensed
program rights available for use at year-end, which are 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.
35
<PAGE> 9
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 $265,148,000, net of $19,324,000 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
$162,463,000, net of $16,165,000 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 intangible
assets. Based upon the most recent analyses, primarily reviews of estimated
undiscounted future cash flows of the associated entities, the Company believes
goodwill and other intangible assets are recoverable at December 31, 1995.
Total amortization expense related to goodwill was $8,392,000 and $10,134,000
in 1995 and 1994, respectively.
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 generally recognized when they are received.
INTEREST
Interest expense is shown net of interest income of $10,026,000, $10,856,000
and $13,864,000 for the years ended December 31, 1995, 1994 and 1993,
respectively, and interest capitalized of $15,486,000 and $14,356,000 in 1995
and 1994, respectively.
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 had only limited involvement with interest rate swap
agreements with commercial banks to mitigate the effect of possible rising
interest rates. These agreements were designated as hedges of interest rates,
and the differential to be paid or received on interest rate swaps was accrued
as an adjustment to interest expense as interest rates changed. The Company has
not entered into any interest rate swap agreements or other financial
instruments for trading purposes. The Company had interest rate swap agreements
having a total notional principal amount of $480,000,000 with commercial banks
to mitigate possible rising interest rates at December 31, 1994, all of which
expired in the first quarter of 1995. The Company did not enter into any
interest rate swap agreements during 1995 and there were no interest rate swap
agreements outstanding at December 31, 1995. See Note 6 of Notes to
Consolidated Financial Statements.
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 8 of Notes to Consolidated Financial Statements.
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 1995, 1994 and 1993. 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,
36
<PAGE> 10
but include the effect, when dilutive, of the Company's other potentially
dilutive securities. The Company's zero coupon subordinated convertible notes
due 2007 are excluded from the 1995, 1994 and 1993 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 6 and Note 10 of Notes to Consolidated Financial
Statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE 2 PROPOSED MERGER WITH TIME WARNER INC.
The Company has entered into an Amended and Restated Agreement and Plan of
Merger dated as of September 22, 1995 (the "Merger Agreement") which provides
for a transaction (the "Mergers") in which the Company and Time Warner Inc.
("Time Warner") will each become a wholly-owned subsidiary of a new holding
company ("New Time Warner"). Pursuant to the Merger Agreement, (i) each
outstanding share of Class A Common Stock of the Company and each share of
Class B Common Stock of the Company (other than shares held directly or
indirectly by Time Warner or New Time Warner or in the treasury of the Company
and other than shares with respect to which dissenters' rights are properly
exercised) will be converted into 0.75 of a share of common stock, par value
$.01 per share, of New Time Warner ("New Time Warner Common Stock"), (ii) each
share of Class C Preferred Stock of the Company (other than shares held
directly or indirectly by Time Warner or New Time Warner or in the treasury of
the Company and other than shares with respect to which dissenters' rights are
properly exercised) will be converted into 4.80 shares of New Time Warner
Common Stock, (iii) each outstanding share of common stock, par value $1.00 per
share, of Time Warner (other than shares held directly or indirectly by Time
Warner) will be converted into one share of New Time Warner Common Stock and
(iv) each outstanding share of each series of preferred stock of Time Warner
(other than shares held directly or indirectly by Time Warner and shares with
respect to which appraisal rights are properly exercised) will be converted
into one share of preferred stock of New Time Warner having the same
designation as the shares of preferred stock of Time Warner so converted.
The Mergers are subject to a number of closing conditions, including
regulatory approvals and the approval of the shareholders of the Company and
the stockholders of Time Warner. Among the required regulatory approvals are
the approval of the Federal Communications Commission (the "FCC") and the
expiration of all waiting periods under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"). Both the FCC and the
Federal Trade Commission (the "FTC"), which has the responsibility for
reviewing the parties' filings under the HSR Act, are closely reviewing the
Mergers. There can be no assurance that all of the conditions to the
consummation of the Mergers will be satisfied or that, as a condition to the
grant of any approvals by government agencies, including the FCC and the FTC,
changes will not be required to the terms of the Merger Agreement or the other
agreements entered into by the Company, Time Warner and Liberty Media
Corporation ("LMC") and its affiliates in connection with the Mergers. As a
result of the arrangements among R.E. Turner, the Company, Time Warner and LMC
and its affiliates, holders of a sufficient number of shares of the Company's
capital stock of each class have agreed to vote in favor of the merger to which
the Company will be a party to assure its approval by the Company's
shareholders, regardless of the vote of any other shareholders of the Company.
The LMC Agreement described below, however, provides that the obligation of LMC
and its affiliates to vote in favor of such merger is subject to certain
conditions, including there not having been amendments to the related
agreements that would have certain effects on LMC.
Concurrently with the execution of the Merger Agreement, the Company and
LMC Southeast Sports, Inc. ("LMC Sports") entered into a Stock Purchase
Agreement (the "SportSouth Agreement") pursuant to which the Company will sell
to LMC Sports all of the outstanding capital stock of Turner Sports
Programming, Inc. ("TSPI") which owns a 44% interest in SportSouth Network,
Ltd. The purchase price for the stock of TSPI (currently estimated to be
$60,000,000) will be determined in accordance with a formula set forth in the
SportSouth Agreement. The transaction contemplated by the SportSouth Agreement
is conditioned upon the consummation of the Mergers. The Company has also
37
<PAGE> 11
agreed, subject to the consummation of the Mergers, to extend the existing
affiliation agreements pursuant to which Tele-Communications, Inc. and its
affiliates distribute programming produced by the Company.
Pursuant to the Amended and Restated LMC Agreement (the "LMC Agreement"),
dated as of September 22, 1995, among Time Warner, New Time Warner, LMC and
certain of its affiliates, LMC and certain of its affiliates have agreed,
subject to certain conditions, to vote all their shares of Company capital
stock in favor of the approval of the merger to which the Company will be a
party and each of the other transactions contemplated by the Merger Agreement
and in favor of the approval of the Merger Agreement. Pursuant to the LMC
Agreement, Time Warner has agreed with LMC that, upon the happening of certain
events, LMC will have the right to cause Time Warner to terminate the Merger
Agreement and abandon the Mergers.
NOTE 3 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 $298,000,000
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 $110,000,000 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 "New Line Merger"). As a result of the New Line 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 New Line 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, 1995, approximately 16,500,000 shares of the Company's Class B
Common Stock had been issued in connection with the New Line 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, 1995 and
1994 were $36,078,000 and $38,177,000, respectively, related to such remaining
shares. Additionally, the Company assumed and incurred liabilities of
approximately $149,100,000 and paid debt and certain other acquisition costs of
approximately $140,000,000 in connection with the New Line Merger. Among the
liabilities assumed in the New Line 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 each holder into an
aggregate of approximately 1,700,000 shares of Class B Common Stock. On January
4, 1996, the Convertible Debentures were called for redemption on February 5,
1996. See Note 6 of Notes to Consolidated Financial Statements.
The New Line 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 on a
straight-line basis over periods not exceeding 40 years.
At the time of the New Line 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.
38
<PAGE> 12
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 statement of operations for the year
ended December 31, 1993 presents the pro forma results of the continuing
operations of the Company, the acquisitions of the Joint Venture and Castle
Rock and the New Line Merger for those periods assuming the acquisitions and
the New Line Merger occurred at the beginning of the period presented. The pro
forma effect of the New Line Merger for the year ended December 31, 1994 is not
considered significant. No pro forma information is presented for 1995 as the
historical results reflect a full year's activity.
The unaudited pro forma results of operations for the Company as adjusted
for the pro forma effects of the above is as follows:
<TABLE>
<CAPTION>
Unaudited
Year ended
December 31,
in thousands, except per share data 1993
----------------------------------------------------
<S> <C>
Revenue $2,444,457
----------------------------------------------------
Income before extraordinary items and
the cumulative effect of a change
in accounting for income taxes $ 33,308
Net income (loss) $ (283,385)
----------------------------------------------------
Income (loss) per share of
Class A and B Common Stock
Income before extraordinary
items and the cumulative
effect of a change in
accounting for income taxes $ 0.12
Net income (loss) $ (0.99)
----------------------------------------------------
</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 years ended December 31,
1995 and 1994, the Company contributed $13,766,000 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 to the limited partnership of $9,000,000 in 1996 of which $6,700,000
was prepaid in December 1995.
The Company's ownership percentage in n-tv was 33.1%, 30.3% and 25.8% at
December 31, 1995, 1994 and 1993, respectively. The Company is accounting for
this investment using the equity method and its share of the net losses of n-tv
for the years ended December 31, 1995, 1994 and 1993 were $12,590,000,
$12,502,000 and $18,622,000, respectively. The Company's other unconsolidated
subsidiaries and 50% or less owned entities including n-tv are not significant
for the year ended December 31, 1995. The summarized financial position at
December 31, 1994 and results of operations for the years ended December 31,
1994 and 1993, respectively, of n-tv follow:
<TABLE>
<CAPTION>
December 31,
----------------------------------
in thousands 1994
----------------------------------
<S> <C>
Current assets $16,917
Noncurrent assets 18,070
Current liabilities 47,780
Partners' deficit (12,793)
----------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year ended
December 31,
in thousands 1994 1993
-----------------------------------
<S> <C> <C>
Revenue $ 17,618 $ 8,222
Operating loss (40,239) (84,169)
Net loss (47,387) (85,815)
-----------------------------------
</TABLE>
NOTE 4 FILM COSTS
The following table sets forth the components of unamortized film costs:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
--------------------------------------------
<S> <C> <C>
Purchased program
rights $1,017,761 $1,102,563
Produced
programming
Released 397,639 302,559
Completed and not
released 73,706 40,021
In process 504,997 405,255
Episodic television 101,430 107,543
Licensed program
rights 302,370 257,796
Prepaid licensed
program rights 105,693 123,687
--------------------------------------------
2,503,596 2,339,424
Less current portion 567,031 446,355
--------------------------------------------
$1,936,565 $1,893,069
--------------------------------------------
</TABLE>
On the basis of the Company's anticipated total gross revenue estimates,
over 86% of produced programming classified as released and episodic television
costs at December 31, 1995, will be amortized within the three-year period
ending December 31, 1998. See Note 1 of Notes to Consolidated Financial
Statements.
39
<PAGE> 13
Film costs included in Cost of operations is composed of the following:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
---------------------------------------------------------
<S> <C> <C> <C>
Purchased
program rights $ 90,438 $ 89,312 $ 75,814
Produced programming 973,771 879,527 360,511
Licensed program rights 104,471 82,086 71,503
Participants' share
and royalties 137,024 54,994 32,072
Non-cash amortization
of certain acquisition
purchase adjustments 17,934 4,859 -
---------------------------------------------------------
$1,323,638 $1,110,778 $539,900
---------------------------------------------------------
</TABLE>
Produced programming Completed and not released, In process and Episodic
television costs are substantially made up of capitalized motion picture and
television film production costs incurred at the Company's three theatrical
film production units, New Line, Castle Rock and Turner Pictures Worldwide. The
production and distribution of motion picture and television film product in
its initial primary and secondary markets are highly competitive businesses, as
each competes with the other as well as with other forms of entertainment. With
respect to distribution of episodic television product, there is significant
competition from independent producers and distributors as well as major
studios. Revenues for motion picture and television film product depend in part
upon general economic conditions, but the competitive position of a producer or
distributor is still greatly affected by the quality of, and public response
to, the entertainment product it makes available to the marketplace. As more
fully discussed in Note 1 of Notes to Consolidated Financial Statements, the
Company capitalizes such costs to be amortized to expense using the individual
film forecast computation method. The individual film forecast computation
method includes estimates of future revenues that are dependent on the risk
factors described above. Therefore, the estimates included in the individual
film forecast method computations are reevaluated periodically, and such
reevaluations may require the Company to record losses in future periods
related to amounts capitalized at December 31, 1995.
NOTE 5 PROPERTY AND EQUIPMENT
Property and equipment is summarized as follows:
<TABLE>
December 31, Estimated
in thousands 1995 1994 useful lives
--------------------------------------------------------------
<S> <C> <C> <C>
Buildings $169,870 $155,995 10-50 years
Equipment and furniture 367,408 285,199 3-15 years
Leasehold Improvements 51,850 38,875 6-15 years
Transponders 25,685 61,961 11-13 years
Land 20,758 21,019
--------------------------------------------------------------
635,571 563,049
Less accumulated
depreciation 277,043 254,089
--------------------------------------------------------------
$358,528 $308,960
==============================================================
</TABLE>
Depreciation expense recorded in the Consolidated Statements of Operations
related to property and equipment was $60,325,000, $39,595,000 and $34,150,000
for the years ended December 31, 1995, 1994 and 1993, respectively.
Buildings include capital leases of $17,154,000 and $18,542,000 at
December 31, 1995 and 1994, respectively, net of accumulated depreciation of
$19,818,000 and $18,430,000, respectively. Depreciation expense related to
capital leases was $1,388,000, $1,393,000 and $1,346,000 for the years ended
December 31, 1995, 1994 and 1993, respectively.
The Company has long-term noncancelable 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 1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Total rental expense $92,790 $88,875 $78,137
Contingent rental expense 4,489 13,370 9,218
----------------------------------------------------
</TABLE>
Future minimum rental payments at December 31, 1995 for noncancelable
operating leases with remaining terms in excess of one year aggregate
$475,835,000 and are payable as follows: 1996 - $79,864,000; 1997 -
$75,990,000; 1998 - $66,751,000; 1999 - $60,018,000; 2000 - $83,219,000; 2001
and thereafter in the aggregate - $109,993,000.
40
<PAGE> 14
NOTE 6 LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
- -------------------------------------------------------------------------------
<S> <C> <C>
Bank credit facilities $1,435,000 $1,490,000
8 3/8% Senior Notes due July 1, 2013, net of
unamortized discount of $2,558 and $2,619 297,442 297,381
7.4% Senior Notes due 2004, net of unamortized
discount of $334 and $363 249,666 249,637
8.4% Senior Debentures due 2024, net of unamortized
discount of $154 and $155 199,846 199,845
Zero coupon subordinated convertible notes, 7.25%
yield, due February 13, 2007, net of
unamortized discount of $318,362 and $336,487 263,694 245,569
Convertible subordinated debentures of a wholly-owned
subsidiary 29,075 29,075
Obligations under capital leases due in varying amounts
through 1999, net of
imputed interest of $684 and $931 5,254 6,200
Other debt 1,336 1,386
- -------------------------------------------------------------------------------
$2,481,313 $2,519,093
Less current portion 1,543 1,345
- -------------------------------------------------------------------------------
$2,479,770 $2,517,748
- -------------------------------------------------------------------------------
</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.
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 1993 and 1994 Credit Agreements bear
interest at varying rates on the basis of short-term market indices and the
Company's operating performance. Interest is payable at intervals specified in
the Credit Agreements. The interest rates under the Credit Agreements ranged
from 6.63% to 9.50% and 4.13% to 9.00% during the years ended December 31, 1995
and 1994, respectively. The Company pays fees of 3/8 of 1% per annum on the
average unborrowed portion of the total amount available for borrowing. At
December 31, 1995 and 1994, the weighted average interest rates were 6.83% and
7.55%, respectively.
The Company had interest rate swap agreements having a total notional
principal amount of $480,000,000 at December 31, 1994 with commercial banks.
The total notional amount of the contracts expired in the first quarter of
1995. 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 approximately
$2,000,000, $22,000,000 and $34,000,000 in 1995, 1994 and 1993, respectively.
The Company continually evaluates the need to hedge against rising interest
rates. The factors which impact this decision include the amount of floating
rate debt as a percentage of the entire debt portfolio, market interest rate
risk and the impact of interest volatility on operating profit. During 1995,
a 100 basis point change in the underlying base rate of the 1993 and 1994
Credit Agreements would represent a change of approximately $15,000,000 in
interest expense.
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
41
<PAGE> 15
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.
12% SENIOR
SUBORDINATED DEBENTURES
On September 16, 1994, the Company called for the redemption on October 17,
1994, of 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
principal amount, net of unamortized discount of $3,019,000, was outstanding at
redemption date. The Subordinated Debentures were redeemed in cash at the rate
of $1,045 plus accrued interest 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. The Company's 8 3/8% Senior
Notes, 7.4% Senior Notes and 8.4% Senior Debentures discussed below were sold
under the Shelf Registration.
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 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. The 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 covenants governing the Securities limit the
Company's ability to incur additional funded debt by requiring the maintenance
of a minimum consolidated interest coverage ratio, as defined. 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 sale of
the Securities to repay amounts
42
<PAGE> 16
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 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.
OTHER
Maturities of long-term debt, including debt discount, for each of the five
years following December 31, 1995, are: $1,543,000, $1,855,000, $101,596,000,
$536,165,000 and $800,090,000, respectively, and $1,362,156,000 after 2000.
Included in the maturities of long-term debt are obligations under capital
leases of $1,492,000, $1,798,000, $1,534,000, $1,097,000 and $17,000 for each
of the five years following December 31, 1995, respectively. Obligations for
film contracts payable and obligations for deferred compensation, including
imputed interest, for each of the five years following December 31, 1995, are:
$79,570,000, $42,475,000, $13,916,000, $1,408,000 and $883,000 respectively,
and $10,745,000 after 2000.
Early extinguishment of indebtedness in 1993 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. 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 in 1994.
On January 4, 1996, the Company called for redemption on February 5, 1996
all of the convertible subordinated debentures of a wholly-owned subsidiary. Of
the $29,075,000 debentures outstanding, substantially all were converted into
the Company's Class B Common Stock at $17.51 per share or 57.11 shares of Class
B Common Stock for each $1,000 face amount of debentures. The conversion
resulted in the issuance of approximately 1,700,000 shares.
NOTE 7 FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying value of all financial instruments approximates fair value except
those discussed below:
LONG-TERM DEBT
The borrowings at December 31, 1995 and 1994 under the Company's 1993 and 1994
Credit Agreements have floating interest rates and therefore, approximate fair
value. The fair value at December 31, 1995 and 1994 of the Senior Notes, the
Senior Debentures, the Notes and the Convertible Notes due 2007 is based on
quoted market values on the respective dates and is summarized below. See Note
6 of Notes to Consolidated Financial Statements.
INTEREST RATE SWAP AGREEMENTS
The fair value of the interest rate swap agreements outstanding at December 31,
1994 was the amount the counterparties would charge the Company to terminate
the swap agreements on that date. As discussed in Note 6 of Notes to
Consolidated Financial Statements, there were no interest rate swap agreements
outstanding at December 31, 1995.
The carrying amounts and estimated fair values of the Company's long-term
debt, net of obligations under capital leases at December 31, 1995 and 1994,
respectively, including amounts related to the interest rate swap agreements of
$2,300,000 at December 31, 1994, are as follows:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
---------------------------------------
<S> <C> <C>
Fair value $2,492,000 $2,360,000
Carrying amount 2,476,000 2,513,000
---------------------------------------
</TABLE>
43
<PAGE> 17
The 1995 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 issuance of the Senior Notes, the Senior
Debentures and the Notes.
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.
INTERNATIONAL CURRENCY CONTRACTS
The Company is exposed to limited financial risk as a result of international
currency fluctuations due to its growing international operations. The Company
has only limited involvement with international forward exchange contracts with
commercial banks to mitigate the effect of potentially adverse changes in
exchange rates. These financial instruments are designed to minimize exposure
and reduce risk from exchange rate fluctuations in the regular course of
business. Gains and losses on forward exchange contracts which are designated
and effective as hedges of exposures from firm currency commitments are
deferred and recognized as adjustments to the bases of those assets or
liabilities. Gains and losses on forward exchange contracts which do not
qualify as hedges of exposures from firm currency commitments are recognized in
income as incurred. Such amounts effectively offset gains and losses on the
associated international currency assets or liabilities. At December 31, 1995,
the Company had forward exchange contracts for the purchase of approximately
$29,000,000 of international currencies at fixed rates, primarily in Canadian
Dollars, Pounds Sterling, and European Currency Units. All of these contracts,
which mature by September 1996, qualify for hedge accounting treatment. For the
years ended December 31, 1995 and 1994, both realized and unrealized gains and
losses on international forward exchange contracts were immaterial. As such,
the carrying value of international currency forward exchange contracts
approximated fair value. The Company has exposure to credit risk but does not
anticipate nonperformance by the counterparties to these agreements.
Based on the international forward exchange contracts outstanding at
December 31, 1995, each 5% devaluation of the U.S. dollar as compared to the
level of international exchange rates for currencies under contract at December
31, 1995 would result in approximately $1,500,000 of unrealized gains on
international currency purchases. Conversely, a 5% appreciation of the U.S.
dollar would result in $1,500,000 of unrealized losses. Consistent with the
nature of the economic hedge provided by such international forward exchange
contracts, such gains or losses would be offset by corresponding decreases or
increases, respectively, in the dollar value of the associated underlying asset
or liability.
NOTE 8 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 3 of Notes to Consolidated
Financial Statements.
The provision for income taxes for the three years ended December 31, 1995
consists of the following:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
----------------------------------------------------------
<S> <C> <C> <C>
Current
Federal $49,516 $42,279 $12,646
State and local 9,300 18,416 9,381
International 17,900 18,525 12,720
Deferred
Federal 2,200 (23,647) 18,147
Increase in federal tax rate - - 6,788
State and local 1,600 (12,144) (6,691)
International (10,100) (10,258) (4,867)
----------------------------------------------------------
Net provision for
income taxes $70,416 $33,171 $48,124
----------------------------------------------------------
</TABLE>
44
<PAGE> 18
The provision for income taxes differs from the amount computed by
applying the applicable U.S. statutory federal income tax rate (35% in 1995,
1994 and 1993) to pre-tax income from continuing operations as a result of the
following items:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
-------------------------------------------------------
<S> <C> <C> <C>
Federal tax provision on
pre-tax income before
extraordinary items
at statutory federal
income tax rate $60,584 $27,763 $42,199
Increase (decrease) due to:
Increase in federal
income tax rate - - 6,788
State and local taxes, net
of federal benefit 9,925 4,077 1,749
Equity in income of
unconsolidated entities - - (3,686)
Nondeductible expenses 9,426 5,227 -
Change in valuation
analysis (3,508) (3,500) -
Foreign tax credit (6,845) - -
Other 834 (396) 1,074
-------------------------------------------------------
Provision for income taxes
before extraordinary item $70,416 $33,171 $48,124
-------------------------------------------------------
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
December 31,
in thousands 1995 1994
-------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Accruals and reserves $ 96,587 $ 57,504
Tax credits and net
operating losses 29,941 30,465
Other 28,321 17,544
-------------------------------------------------------
154,849 105,513
-------------------------------------------------------
Valuation allowance on
deferred tax assets (1,715) (5,223)
-------------------------------------------------------
Deferred tax liabilities
Film costs and related
intangibles (426,127) (426,931)
Accounts receivable (87,473) (34,656)
Other (40,226) (17,266)
-------------------------------------------------------
(553,826) (478,853)
-------------------------------------------------------
$(400,692) $(378,563)
-------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets at December 31, 1995 was
$1,715,000. The net change in the total valuation allowance for the year ended
December 31, 1995 was a decrease of $3,508,000, relating to foreign tax credits
("FTC").
At December 31, 1995, FTC carryforwards of approximately $11,200,000 were
available to offset future federal income tax. For tax purposes, the FTC
carryforwards will expire from 1998 through 2000. Additionally, an alternative
minimum tax credit of approximately $7,200,000 is available to offset the
Company's regular tax liability in future years.
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, 1995 approximately
$3,300,000 of NOL carryforwards and approximately $1,200,000 of FTC
carryforwards remain available to offset the future tax liability of the Joint
Venture. The NOL and FTC carryforwards will begin expiring in 2007 and 1998,
respectively.
In connection with the New Line Merger, the Company also acquired FTC
carryforwards which can only be used to reduce the federal income tax liability
of New Line. As of December 31, 1995, approximately $2,100,000 of FTC
carryforwards remain available to offset the future tax liability of New Line.
The FTC carryforwards will begin expiring in 1998.
The 1991 and 1992 consolidated federal income tax returns of the Company
are presently under examination by the Internal Revenue Service (the "IRS").
The Company anticipates that in 1996 the IRS will issue a deficiency notice for
additional taxes. The IRS is prohibited from assessing and collecting the
disputed taxes until the taxpayer has had an opportunity to seek a
redetermination of the asserted deficiency in the U.S. Tax Court. In the event
a deficiency notice is received, the Company will file a petition in the U.S.
Tax Court contesting the notice as it believes the items in dispute have been
properly reflected in its tax returns. The Company does not anticipate a quick
resolution of this matter and the ultimate result cannot be predicted at this
time. However, in the opinion of management, any additional tax liability
resulting from this matter 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 $2,263,000
and $459,000 in 1995 and 1994, 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.
45
<PAGE> 19
NOTE 9 COMMITMENTS AND CONTINGENCIES
COMMITMENTS
In addition to long-term noncancelable 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 9 are summarized as
follows:
<TABLE>
<CAPTION>
Licensed Produced Employment
in thousands program rights programming Newsgathering contracts
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996 $ 95,311 $546,949 $ 5,848 $ 96,946
1997 69,073 296,759 2,579 80,170
1998 76,216 74,091 480 150,120
1999 77,147 335 504 25,205
2000 and thereafter 91,416 250 1,115 16,304
- -----------------------------------------------------------------------------------
$409,163 $918,384 $10,526 $368,745
- -----------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, 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 $537,265,000 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.
In November 1995, the Atlanta National League Baseball Club, Inc. (the
"Braves"), a wholly-owned subsidiary of the Company, entered into an agreement
with the Atlanta Committee for the Olympic Games whereby the Braves have
agreed, under certain conditions, to contribute $23,365,000 toward the payment
of certain costs to construct stadium facilities for use in staging the 1996
Summer Olympic Games, including modifications for permanent use as a baseball
facility and demolition of the existing facility used by the Braves, both after
the staging of the 1996 Summer Olympic Games. All such costs are expected to be
paid in 1996 and 1997.
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.
NOTE 10 STOCKHOLDERS' EQUITY (DEFICIT)
COMMON STOCK
Each share of Class A and Class B Common Stock is identical in all respects
except voting privileges. 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. The Class B Common stockholders are entitled to
one-fifth vote per share.
46
<PAGE> 20
In 1995 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 connection with the redemption of the Convertible Notes due 2004. See
Note 6 of Notes to Consolidated Financial Statements.
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 holders of Class C Preferred Stock are entitled to
vote as though they held the Class B Common Stock underlying the shares of
Class C Preferred Stock 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 holders of Class C Preferred Stock 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.
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. 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, 1995, the total number of shares available for
the grant of options under the 1988 Plan was 180,432 Shares of Class B Common
Stock.
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, 1995, the total number of shares
available for the grant of options under the 1993 Plan was 8,962,200 Shares of
Class B Common Stock.
47
<PAGE> 21
In connection with the New Line Merger, the Company assumed three New Line
Stock Option Plans in effect at that time. Accordingly, each New Line stock
option outstanding at the time of the New Line 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 New
Line Merger had such holder exercised such option in full immediately prior to
the New Line Merger. Transactions relating to rights to purchase Class B Common
Stock under the 1988 Plan, 1993 Plan and pursuant to the New Line Merger for
the three years ended December 31, 1995, 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, 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 connection with the
New Line 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
Granted 3,858,300
Exercised (558,282) $2.792 - 19.500 $6,746
Canceled or expired (304,359)
- -------------------------------------------------------------------------------------
Balance at December 31, 1995 16,932,403
- -------------------------------------------------------------------------------------
</TABLE>
(1) The options outstanding at December 31, 1995 are exercisable at prices
ranging from $1.3207 to $27.250 per share for a total exercise price of
$312,117,682. The majority of the stock options are exercisable at $26.250
(3,215,000 shares), $16.625 (1,942,000 shares), $16.875 (1,485,400 shares),
$27.125 (1,301,000 shares), $17.625 (1,110,850 shares), $13.170 (1,068,178
shares), $25.625 (1,053,300 shares) and $12.839 (891,865 shares).
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.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123"). This Statement encourages the adoption of a
fair-value-based method of accounting for stock-based compensation plans in
place of the intrinsic-value-based method prescribed by Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"),
for all arrangements under which employees receive shares of stock or other
equity instruments of the employer, or the employer incurs liabilities to
employees based on the price of its stock. In addition, FAS 123 establishes
fair value as the measurement basis for transactions in which an entity
acquires goods or services from nonemployees in exchange for equity
instruments. The Statement allows entities to chose to adopt the method defined
in FAS 123 or to continue to apply the method prescribed by APB 25 while
providing disclosure of pro forma amounts representing the effect of
fair-value-based accounting. The Company will adopt FAS 123 on January 1, 1996.
It is the Company's intention, as permitted by FAS 123, to continue to apply
the measurement provisions of APB 25 and provide the required pro forma
disclosures.
NOTE 11 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 has continued to 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 Balance Sheet and the
proceeds have been included as a source of cash provided by operations in the
Consolidated 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
48
<PAGE> 22
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 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 but is intended to be renewed
for another one-year term, the Company performs collection and administrative
responsibilities as agent for the purchaser on the related purchased
receivables.
As of December 31, 1995, the Company had sold an undivided interest in
this designated pool of domestic cable and advertising accounts receivable that
aggregated $300,000,000 and generated net proceeds of $222,000,000. The
estimated total cost of the program for the sale of accounts receivable during
1995 approximated $14,300,000 and is reflected as a reduction of operating
profit in the Consolidated Statement of Operations.
NOTE 12 RETIREMENT SAVINGS PLANS
The Company has four domestic and one international defined contribution
retirement plans and one defined benefit retirement plan. 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 Braves, 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. 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 Braves. 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 defined benefit
retirement plan covers non-uniformed personnel of the Braves. The Company's
total contribution for all plans described above was approximately $17,000,000,
$13,400,000 and $10,500,000 for 1995, 1994 and 1993, respectively.
NOTE 13 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 and satellite television systems which receive and
distribute to their subscribers programming provided by the Company's cable
television operations. See Note 10 of Notes to Consolidated Financial
Statements.
The Company recorded subscription fees from the Unit Investors for the
delivery of such cable and satellite services (CNN, Headline News, TNT, Cartoon
Network, Turner Classic Movies ("TCM") and certain international networks),
before deductions for advertising allowances, of approximately $354,611,000 for
1995, $287,026,000 for 1994, and $272,318,000 for 1993. These amounts
constituted approximately 48%, 46%, and 50% of the Company's total subscription
revenue during each respective year. At December 31, 1995 and 1994, the
receivables from the Unit Investors aggregated approximately $92,657,000 and
$103,432,000, respectively. Advertising revenues received by the Company during
1995 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 54%, 54%, 57%, 54% and 53% of the cable
audience coverage as of December 1995 for TBS Superstation, CNN, Headline News,
TNT and Cartoon Network, respectively.
The Company is vulnerable to the risk of loss of future revenues
associated with the concentration of such revenues with the Unit Investors. If
the Unit Investors discontinued carriage of the Company's cable television
operations, subscription and advertising revenues would decrease, resulting in
a significant adverse impact on the Company's operating profit and net income
in future periods.
Warner Home Video, Inc. ("WHV"), a wholly-owned subsidiary of Time Warner,
services certain obligations under an agreement between the predecessor of
Metro-Goldwyn-Mayer Inc. ("MGM") and the Company to distribute in the home
video market most MGM and pre-1950 Warner Bros. films in the TEC Film Library.
The original agreement expires in 2001. Revenues recorded in 1995, 1994 and
1993 pursuant to the distribution agreement were $80,361,000, $104,080,000 and
$81,723,000, respectively. Expenses recorded in the same periods pursuant to
the distribution agreement were $54,441,000, $73,813,000 and $50,549,000,
respectively.
Time Warner and its subsidiaries have entered into license agreements with
the Company pursuant to which the Company has acquired broadcast rights to
certain television and theatrical product. The Company paid an
49
<PAGE> 23
aggregate of approximately $18,236,000, $19,295,000 and $13,933,000 for license
fees during 1995, 1994 and 1993, respectively, under these agreements and is
committed to pay $59,946,000 through 2005 under these agreements. Additionally,
Time Warner has an ownership interest in n-tv. See Note 3 of Notes to
Consolidated Financial Statements.
Pursuant to an agreement entered into between New Line and Encore Media
Corporation ("Encore"), New Line has agreed to supply, on an exclusive basis,
films for exhibition on Starz!, a premium cable programming service, or other
pay television services owned or operated by Encore. LMC has a 90% interest in
Encore. For the year ended December 31, 1995, the Company recorded revenue of
$42,198,000 pursuant to the agreement.
NOTE 14 SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental disclosure of cash flow information and non-cash investing and
financing activities include:
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid, net of
interest received $184,025 $198,042 $137,664
Payments of accreted
interest upon
redemption of
related securities - - 74,683
Cash paid for income taxes 71,654 36,721 18,405
Disposal of fixed assets - - 16,327
- -------------------------------------------------------------------------------------
</TABLE>
On January 28, 1994, the Company completed the New Line Merger as follows
(in thousands):
<TABLE>
<S> <C>
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>
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 $660,596
Less: cash paid for capital stock and debt 258,500
cash paid for partnership interest,
debt and other acquisition costs 318,900
Liabilities assumed $ 83,196
----------------------------------------------------
</TABLE>
NOTE 15 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 four 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
consist primarily of fees for licensed film rights billed within Entertainment
and for lease rentals and facility services billed by the Other segment.
Advertising costs, other than advertising associated with film costs, are
expensed upon first exhibition of the advertisement. Segment operating results
include advertising expense of approximately $95,500,000, $83,200,000 and
$84,900,000 for the years ended December 31, 1995, 1994 and 1993, respectively.
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 $445,000,000, $393,000,000 and $240,000,000 for the
years ended December 31, 1995, 1994 and 1993, respectively. Approximately 45%,
26% and 17% of the 1995 export sales were from customers in Europe, Asia and
Latin America, 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.
50
<PAGE> 24
BUSINESS SEGMENT INFORMATION
<TABLE>
<CAPTION>
Year ended December 31,
in thousands 1995 1994 1993
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue
Entertainment
Networks $1,207,921 $1,035,775 $ 934,248
Production and Distribution 1,375,622 1,050,374 267,035
Intrasegment revenue elimination (79,816) (84,920) (39,001)
- ----------------------------------------------------------------------------
Total Entertainment 2,503,727 2,001,229 1,162,282
News 765,278 667,182 599,352
Other 206,688 164,072 182,339
Intersegment revenue elimination (38,343) (23,358) (22,367)
- ----------------------------------------------------------------------------
$3,437,350 $2,809,125 $1,921,606
- ----------------------------------------------------------------------------
Operating profit (loss) (1)
Entertainment
Networks $ 242,668 $ 128,289 $ 165,530
Production and Distribution (49,147) (27,344) (23,605)
Intrasegment elimination 7,174 18,507 1,320
- ----------------------------------------------------------------------------
Total Entertainment 200,695 119,452 143,245
News 264,854 227,374 212,202
Other (77,381) (70,929) (33,267)
Gain on sale of equity investment - 21,746 -
Equity in loss of unconsolidated
entities (2) (5,750) (10,001) (20,040)
Cost of accounts receivable
securitization program (14,297) - -
Time Warner merger costs (9,749) - -
- ---------------------------------------------------------------------------
$ 358,372 $ 287,642 $ 302,140
- ----------------------------------------------------------------------------
Depreciation and amortization of
goodwill and other intangibles (3)
Entertainment
Networks $ 11,721 $7,533 $ 5,445
Production and Distribution 22,139 17,051 1,508
- ----------------------------------------------------------------------------
Total Entertainment 33,860 24,584 6,953
News 16,403 13,135 11,147
Other 29,677 21,026 21,173
- ----------------------------------------------------------------------------
$ 79,940 $ 58,745 $ 39,273
- ----------------------------------------------------------------------------
Identifiable assets at end of year
Entertainment
Networks $ 687,297 $ 788,406 $ 779,220
Production and Distribution 3,051,880 2,727,319 1,932,751
- ----------------------------------------------------------------------------
Total Entertainment 3,739,177 3,515,725 2,711,971
News 220,838 282,111 218,040
Other 435,385 274,709 314,851
- ----------------------------------------------------------------------------
$4,395,400 $4,072,545 $3,244,862
- ----------------------------------------------------------------------------
Capital expenditures
Entertainment
Networks $ 25,742 $ 40,053 $ 9,797
Production and Distribution 13,875 8,687 2,559
- ----------------------------------------------------------------------------
Total Entertainment 39,617 48,740 12,356
News 23,074 26,648 14,479
Other 40,574 33,848 23,735
- ----------------------------------------------------------------------------
$ 103,265 $ 109,236 $ 50,570
- ----------------------------------------------------------------------------
</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 goodwill and other intangible assets.
51
<PAGE> 25
NOTE 16 UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
1995 Three months ended
in thousands, except per share data Mar. 31 June 30 Sept. 30 Dec. 31
- ------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $710,315 $797,886 $1,006,581 $922,568
Operating profit (1) 88,951 83,661 107,073 78,687
Net income 21,990 21,700 39,756 19,235
- ------------------------------------------------------------------------------
Earnings per common share
Net income $ 0.08 $ 0.08 $ 0.14 $ 0.07
- ------------------------------------------------------------------------------
</TABLE>
<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
- ------------------------------------------------------------------------------
</TABLE>
(1) Operating profit is defined as income before interest expense, interest
income, income taxes and extraordinary item, where applicable.
(2) Extraordinary losses on early extinguishments of debt of $40,977,000, net
of income tax benefits of $15,981,000, for the three months ended September 30,
1994, are included in the calculation of net income.
52
<PAGE> 26
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, 1995 and 1994, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 1995, 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 2 to the Consolidated Financial Statements, the
Company entered into an Amended and Restated Agreement and Plan of Merger dated
as of September 22, 1995 which provides for a transaction, if consummated, in
which the Company and Time Warner Inc. will each become a wholly-owned
subsidiary of a new holding company.
As discussed in Note 8 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 5, 1996
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 Vice President,
and Chief Financial Officer Controller and Chief
Accounting Officer
53
<PAGE> 27
EXECUTIVE OFFICERS
<TABLE>
<S> <C>
R.E. Turner Scott M. Sassa
Chairman of the Board of Directors and President Vice President - Turner Entertainment Group
and a director
Christian L. Becken
Vice President and Treasurer Harvey W. Schiller
Vice President - Sports Programming
William S. Ghegan
Vice President, Controller and William M. Shaw
Chief Accounting Officer Vice President - Administration
William H. Grumbles Robert Shaye
Vice President - Worldwide Distribution Chairman and Chief Executive Officer -
New Line Cinema Corporation and a director
Elahe Hessamfar
Vice President and Chief Information Officer Julia W. Sprunt
Vice President Marketing and Communications
Steven J. Heyer
Vice President - Advertising Sales and Marketing
CORPORATE HEADQUARTERS
W. Thomas Johnson
Vice President - News and a director One CNN Center
Atlanta, Georgia 30303
(404) 827-1700
Steven W. Korn
Vice President, General Counsel and Secretary
OUTSIDE COUNSEL
Terence F. McGuirk
Executive Vice President and a director Troutman Sanders
5200 NationsBank Plaza
Wayne H. Pace 600 Peachtree Street, N.E.
Vice President - Finance and Chief Financial Officer Atlanta, Georgia 30308-2216
INDEPENDENT ACCOUNTANTS
Price Waterhouse LLP
50 Hurt Plaza
Atlanta, Georgia 30303
</TABLE>
54
<PAGE> 28
INVESTOR INFORMATION
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
State Street Bank and Trust Company
Corporate Trust Department
P.O. Box 778
Boston, Massachusetts 02102
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 sales prices per share of common stock on the AMEX Composite Tape.
<TABLE>
<CAPTION>
Calendar Year
------------------------------
1995 1994
High Low High Low
--------------------------------------------------
<S> <C> <C> <C> <C>
First quarter
Class A $18 3/4 $16 $27 5/8 $20 1/2
Class B 18 7/8 16 1/4 27 3/4 20 1/2
Second quarter
Class A 20 17 1/2 20 17 1/8
Class B 20 1/2 17 7/8 20 17 1/4
Third quarter
Class A 30 7/8 21 3/4 19 5/8 17
Class B 30 3/4 22 1/4 20 17
Fourth quarter
Class A 27 5/8 25 3/8 20 15
Class B 28 25 7/8 20 3/8 15 1/8
--------------------------------------------------
</TABLE>
STOCKHOLDERS
The approximate number of holders of record of Class A Common Stock and Class B
Common Stock as of December 31, 1995 was 1,800 and 2,000, respectively. This
number does not include all individuals with beneficial interests in the stock.
DIVIDEND POLICY
In 1995 and 1994, the Company paid quarterly dividends of $0.0175 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 $30,000,000. 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 Restated 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 1995 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
55
<PAGE> 1
EXHIBIT 21
LIST A
TURNER BROADCASTING SYSTEM, INC.
(WHOLLY-OWNED SUBSIDIARIES)
1. Atlanta National League Baseball Club, Inc. ("ANLBC")
ANLBC Subs: a. Atlanta Braves, Inc.
b. Braves Productions, Inc.
c. The Stadium Club, Inc.
*d. Atlanta Braves Spring Training Corp.
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. ("TLC")
TLC Sub: *1. Turner Capital Corp.
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. Newbar Music, Inc.
d. Orbit City Art Company
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 Funding Corp.
*15. Techwood Clearinghouse, Inc.
16. Turner Arena Productions and Sales, Inc. ("TAPS")
TAPS Subs: a. Atlanta Coliseum, Inc.
b. The Omni Promotions Management Company
("OPMC")
<PAGE> 3
OPMC Subs: 1. Techwood Entertainment, Inc.
c. Seats, Inc.
17. Turner Broadcasting Sales, Inc.
*18. Turner Broadcasting System Asia Pacific, Inc.
19. Turner Broadcasting System Limited ("TBSL")
TBSL Subs: a. Castle Rock International (UK) Limited
*b. New Line International Limited
c. Turner Entertainment Networks International
Limited ("TENIL")
TENIL Subs: 1. The Cartoon Network Limited
2. Turner Network Television Limited
d. Turner Home Entertainment UK Limited
e. Turner International Advertising Sales Limited
f. Turner International Network Sales
Limited ("TINSL")
TINSL Sub: 1. Turner Broadcasting International
Limited
g. Turner International Television Licensing
Limited
h. Turner Pictures Worldwide (UK) Limited ("TPWUK")
TPWUK Sub:
*1. Woodtech Productions (UK) Limited
*20. 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. Turner Original Productions,
Inc. ("TOPS")
TOPS Sub: 1. TBS Productions, Inc. ("TBSP")
TBSP Subs: a. North Center Productions,
Inc.
b. Ten 50 Productions, Inc.
3. Turner Classic Movies, Inc.
*4. Turner Entertainment Networks Asia, Inc.
5. Turner Network Television, Inc.
<PAGE> 4
<TABLE>
<S> <C> <C>
b. Turner Home Entertainment, Inc. ("THE")
THE Subs: *1. Rooftop Productions, Inc.
2. Turner Educational Services, Inc.
3. Turner New Media, Inc.
4. Turner Pictures Worldwide Distribution,
Inc.
5. Turner Publishing, Inc.
*6. Turner Records, Inc.
c. Turner Pictures Group, Inc. ("TPG")
TPG Subs: 1. Turner Entertainment Co. ("TEC")
TEC Subs: a. Clarington Productions, Inc.
b. Elstree Ltd.
c. Filmland Data Processing Co.
d. Filmland Production Co.
e. H-B Distribution Co.
f. Premier Record Corporation
g. TEC Bounty Exhibition, Inc.
h. Turner Affiliated Music, Inc.
i. Turner Entertainment Associated, Inc.
j. Turner Entertainment Co. (de Mexico)
k. Turner Entertainment Distribution
Services, Inc.
l. Turner Entertainment Film Co.
m. Turner Entertainment Manila, Inc.
n. Turner Entertainment Oriental Co., Inc.
o. Turner Entertainment Pictures of Canada
Limited
p. Turner Music, Inc.
q. Turner Tape Storage Co.
2. Turner Pictures Worldwide, Inc. ("TPW")
TPW Subs: a. Colbath, Inc.
b. Retro, Inc.
c. TNT Music Publishing, Inc.
d. Techwood Music, Inc.
e. Techwood Productions, Inc.
f. Turner Films, Inc. ("TFI")
TFI Subs: *1. Horseshoe Productions, Inc.
*2. Turner Cinema, Inc.
g. Turner Pages, Inc.
3. Turner Feature Animation, Inc.
</TABLE>
<PAGE> 5
21. Turner Home Satellite, Inc.
22. 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 Asia Pacific 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 Productions S.A.
q. Turner Slovakia, Inc.
23. Turner Marketing, Inc.
24. Turner Music Publishing, Inc. ("TMP")
TMP Sub: *a. Title Match Music, Inc.
25. Turner Network Sales, Inc.
26. Turner Omni Venture, Inc.
27. Turner Private Networks, Inc. ("TPNI")
TPNI Subs: a. AC Holdings, Inc.
b. COC Holdings, Inc.
28. Turner Program Services, Inc.
29. Turner Properties, Inc.
30. Turner Reciprocal Advertising Corporation
31. Turner Retail Company
*32. Turner Second Generation, Inc.
33. Turner Security, Inc.
34. Turner Sports, Inc. ("TSI")
<PAGE> 6
TSI Sub: *a. Turner Sports International Enterprises, Inc.
35. Turner Sports Programming, Inc.
36. Turner Teleport, Inc.
37. World Championship Wrestling, Inc.**
*New Subsidiary
**100 shares of non-voting Class B common stock owned by Jim Crockett
Promotions, Inc.
6
<PAGE> 7
LIST B
TURNER BROADCASTING SYSTEM, INC.
ALPHABETICAL LIST OF SUBSIDIARIES
1. AC Holdings, Inc. (27a)
2. Alex Entertainment, Inc. (10a)
3. Atlanta Braves, Inc. (1a)
* 4. Atlanta Braves Spring Training Corp. (1d)
5. Atlanta Coliseum, Inc. (16a)
6. Atlanta National League Baseball Club, Inc. (1)
7. Barhanna Music, Inc. (7a)
8. Bedrock Productions, Inc. (7b1)
9. Braves Productions, Inc. (1b)
10. CNN America, Inc. (3a)
11. CNN Business News International, Inc. (3b)
12. CNN Germany, Inc. (3c)
13. COC Holdings, Inc. (27b)
14. CR Acquisition Co. (2)
15. Cable News International, Inc. (3d)
16. Cable News Network, Inc. (3)
17. The Cartoon Network, Inc. (20a1)
18. The Cartoon Network Limited (19c1)
19. Castle Rock Entertainment, Inc. (4)
20. Castle Rock International (UK) Limited (19a)
21. Clarington Productions, Inc. (20c1a)
22. Colbath, Inc. (20c2a)
23. Elstree Ltd. (20c1b)
24. The Endangered Film Company, Inc. (7b2)
25. Fil-Cartoons, Inc. (6a4a)
26. Filmland Data Processing Co. (20c1c)
27. Filmland Production Co. (20c1d)
28. Gamma Productions, Inc. (5a)
29. Goodwill Games, Inc. (5)
30. H-B Distribution Co. (20c1e)
31. HB Holding Co. (6)
32. Hanna-Barbera B.V. (6a4b)
33. Hanna-Barbera Cartoons, Inc. (7b)
34. Hanna-Barbera Enterprises, Inc. (6a1)
35. Hanna-Barbera Entertainment Co., Inc. (6a)
36. Hanna-Barbera Home Video, Inc. (6a2)
37. Hanna-Barbera, Inc. (7)
38. Hanna-Barbera Music Corp. (6a3)
39. Hanna-Barbera Productions, Inc. (6a4)
<PAGE> 8
40. Hanna-Barbera Retail, Inc. (6a5)
41. Hawks Basketball, Inc. (8)
* 42. Horseshoe Productions, Inc. (20c2f1)
43. ICC Ventures, Inc. (9)
44. Juno Pix, Inc. (10b)
45. Justine Pictures AVV (10j1)
46. Katja Motion Picture Corp. (10c)
47. Lampline, Inc. (10d)
48. Mitchell Entertainment, Inc. (10e)
49. Newbar Music, Inc. (7c)
50. New Line Cinema Corporation (10)
51. New Line Distribution, Inc. (10f)
52. New Line Home Video, Inc. (10g)
53. New Line International Limited (19b)
54. New Line International Releasing, Inc. (10h)
* 55. New Line New Media, Inc. (10i)
56. New Line Productions, Inc. (10j)
57. New Line Realty of New York, Inc. (10k)
58. New Line Television, Inc. (10l)
59. New Line Television International Limited (10m)
60. Nicolas Entertainment, Inc. (10n)
61. North Center Productions, Inc. (20a2a1a)
62. The Omni Promotions Management Company (16b)
63. Orbit City Art Company (7d)
64. Premier Record Corporation (20c1f)
65. RET Corporation (11)
66. RET Music, Inc. (12)
67. R-S Pictures, Inc. (6a6)
68. Raby-Spar Enterprises, Inc. (6a7)
69. Retro, Inc. (20c2b)
70. Rooftop Productions, Inc. (20b1)
71. Seats, Inc. (16c)
72. Soviet-American Trading Corporation (13)
73. The Stadium Club, Inc. (1c)
74. Superstation, Inc. (20a2)
75. TBS Funding Corp. (14)
76. TBS Productions, Inc. (20a2a1)
77. TEC Bounty Exhibition, Inc. (20clg)
78. TNT Music Publishing, Inc. (20c2c)
* 79. Techwood Clearinghouse, Inc. (15)
80. Techwood Entertainment, Inc. (16b1)
81. Techwood Music, Inc. (20c2d)
82. Techwood Productions, Inc. (20c2e)
83. Ten 50 Productions, Inc. (20a2a1b)
<PAGE> 9
84. Title Match Music, Inc. (24a)
85. Turner Affiliated Music, Inc. (20c1h)
86. Turner Arena Productions and Sales, Inc. (16)
87. Turner Broadcasting International Limited (19f1)
88. Turner Broadcasting Sales, Inc. (17)
89. Turner Broadcasting System Asia Pacific, Inc. (18)
90. Turner Broadcasting System Limited (19)
91. Turner Cinema, Inc. (20c2f2)
92. Turner Capital Corp. (5b1)
93. Turner Classic Movies, Inc. (20a3)
94. Turner Czech, Inc. (22a)
95. Turner Educational Services, Inc. (20b2)
96. Turner Entertainment Associated, Inc. (20c1i)
97. Turner Entertainment Co. (20c1)
98. Turner Entertainment Co. (de Mexico)(20c1j)
99. Turner Entertainment Co. (de Puerto Rico)(22b)
100. Turner Entertainment Distribution Services, Inc. (20c1k)
101. Turner Entertainment Film Co. (20c1l)
*102. Turner Entertainment Group, Inc. (20)
103. Turner Entertainment Manila, Inc. (20c1m)
*104. Turner Entertainment Networks Asia, Inc. (20a4)
*105. Turner Entertainment Networks, Inc. (20a)
106. Turner Entertainment Networks International Limited (19c)
107. Turner Entertainment Oriental Co., Inc. (20c1n)
108. Turner Entertainment Pictures of Canada Limited (20c1o)
*109. Turner Feature Animation, Inc. (20c3)
110. Turner Films, Inc. (20c2f)
111. Turner Home Entertainment, Inc. (20b)
112. Turner Home Entertainment UK Limited (19d)
113. Turner Home Satellite, Inc. (21)
114. Turner International Advertising Sales Limited (19e)
115. Turner International Argentina S.A. (22c)
116. Turner International Australia Pty. Limited (22d)
117. Turner International Broadcasting Russia, Inc. (22e)
*118. Turner International Canada, Inc. (22f)
*119. Turner International China, Inc. (22g)
120. Turner International do Brasil Ltda. (22h)
121. Turner International Asia Pacific Limited (22i)
122. Turner International Holding Company (22j)
123. Turner International, Inc. (22)
*124. Turner International India Private Limited (22k)
125. Turner International Japan, Inc. (22l)
*126. Turner International Mexico, S.A. de C.V. (22m)
127. Turner International Netherlands B.V. (22n)
<PAGE> 10
128. Turner International Network Sales Limited (19f)
129. Turner International Television Licensing Co., Inc. (22o)
130. Turner International Television Licensing Limited (19g)
131. Turner Leasing Company, Inc. (5b)
132. Turner Marketing, Inc. (23)
133. Turner Music, Inc. (20c1p)
134. Turner Music Publishing, Inc. (24)
135. Turner Network Sales, Inc. (25)
136. Turner Network Television, Inc. (20a5)
137. Turner Network Television Limited (19c2)
138. Turner New Media, Inc. (20b3)
139. Turner Omni Venture, Inc. (26)
*140. Turner Original Productions, Inc. (20a2a)
141. Turner Pictures Group, Inc. (20c)
142. Turner Pages, Inc. (20c2g)
143. Turner Pictures Worldwide Distribution, Inc. (20b4)
144. Turner Pictures Worldwide, Inc. (20c2)
145. Turner Pictures Worldwide (UK) Limited (19h)
146. Turner Private Networks, Inc. (27)
*147. Turner Productions S.A. (22p)
148. Turner Program Services, Inc. (28)
149. Turner Properties, Inc. (29)
150. Turner Publishing, Inc. (20b5)
151. Turner Reciprocal Advertising Corporation (30)
*152. Turner Records, Inc. (20b6)
153. Turner Retail Company (31)
*154. Turner Second Generation, Inc. (32)
155. Turner Security, Inc. (33)
156. Turner Slovakia, Inc. (22q)
157. Turner Sports, Inc. (34)
158. Turner Sports International Enterprises, Inc. (34a)
159. Turner Sports Programming, Inc. (35)
160. Turner Tape Storage Co. (20c1q)
161. Turner Teleport, Inc. (36)
162. Venus Productions Ltd. (10j2)
163. Vineland Productions, Inc. (7e)
164. Woodtech Productions (UK) Limited (19h1)
165. World Championship Wrestling, Inc. (37)
*New Subsidiary
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-24191, No. 33-52173, No. 33-55539 and No.
33-61031) and in the Prospectus constituting part of the Registration Statement
on Form S-3 (No. 33-62218) of Turner Broadcasting System, Inc. of our report
dated February 5, 1996 appearing in the 1995 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.
/s/ Price Waterhouse
PRICE WATERHOUSE LLP
Atlanta, Georgia
March 21, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995, 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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 85,133
<SECURITIES> 52
<RECEIVABLES> 596,083
<ALLOWANCES> (38,503)
<INVENTORY> 0
<CURRENT-ASSETS> 1,393,321
<PP&E> 635,571
<DEPRECIATION> (277,043)
<TOTAL-ASSETS> 4,395,400
<CURRENT-LIABILITIES> 839,639
<BONDS> 2,481,313
0
260,438
<COMMON> 12,895
<OTHER-SE> 164,346
<TOTAL-LIABILITY-AND-EQUITY> 4,395,400
<SALES> 3,437,350
<TOTAL-REVENUES> 3,437,350
<CGS> 2,080,581
<TOTAL-COSTS> 3,078,978
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (13,645)
<INTEREST-EXPENSE> 185,275
<INCOME-PRETAX> 173,097
<INCOME-TAX> 70,416
<INCOME-CONTINUING> 102,681
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 102,681
<EPS-PRIMARY> 0.36
<EPS-DILUTED> 0.00
</TABLE>
