<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
June 26, 1996
Date of Report (Date of earliest event reported)
TURNER BROADCASTING SYSTEM, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Georgia 0-9334 58-0950695
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
</TABLE>
<TABLE>
<S> <C>
One CNN Center, Atlanta, Georgia 30303
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (404) 827-1700
Not Applicable
(Former name or former address, if changed since last report)
<PAGE> 2
ITEM 5. OTHER EVENTS.
As previously reported, Turner Broadcasting System, Inc., a Georgia
corporation ("TBS"), has entered into an Amended and Restated Agreement and
Plan of Merger dated as of September 22, 1995 (the "Merger Agreement") among
TBS, 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 (the "TBS Transaction") in which TBS and Time Warner will each
become a wholly-owned subsidiary of a new holding company. Pursuant to the
Merger Agreement, (a) Georgia Sub will be merged into TBS (the "TBS Merger"),
(b) each outstanding share of Class A Common Stock, par value $0.0625 per
share, of TBS and each share of Class B Common Stock, par value $0.0625 per
share, of TBS (other than shares held directly or indirectly by Time Warner or
New Time Warner or in the treasury of TBS 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 TBS (other than shares held directly or
indirectly by Time Warner or New Time Warner or in the treasury of TBS 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, (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 TBS
will become a wholly-owned subsidiary of New Time Warner and (h) New Time
Warner will be renamed "Time Warner Inc."
2
<PAGE> 3
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
The following pro forma consolidated condensed financial information of
New Time Warner gives effect to the consummation of the TBS Transaction and a
number of transactions that Time Warner and Time Warner Entertainment Company,
L.P. ("TWE") have completed, or have entered into agreements with respect to,
during the periods presented below (the "TW Transactions"). The TW
Transactions for which adjustments have been made, as more fully described in
Time Warner's Current Report on Form 8-K, dated May 15, 1996, and certain other
Time Warner Current Reports on Form 8-K referenced below, Time Warner's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, and Time
Warner's Annual Report on Form 10-K for year ended December 31, 1995, are as
follows:
(i) on February 1, 1996, Time Warner redeemed the remaining
$1.2 billion principal amount of 8.75% Convertible Subordinated
Debentures due 2015 (the "8.75% Convertible Debentures") for $1.28
billion, including redemption premiums and accrued interest thereon
(the "February 1996 Redemption"). In addition, in September 1995,
Time Warner redeemed approximately $1 billion principal amount of
8.75% Convertible Debentures for $1.06 billion, including redemption
premiums and accrued interest thereon (the "September 1995
Redemption"). The September 1995 Redemption was financed with (a)
approximately $500 million of proceeds raised in June 1995 from the
issuance of 7.75% notes due 2005 (the "7.75% Notes"), (b) $363
million of net proceeds raised in August 1995 from the issuance of
approximately 12.1 million Time Warner-obligated mandatorily
redeemable preferred securities of a subsidiary ("PERCS") that are
redeemable for cash or, at Time Warner's option, approximately 12.1
million shares of Hasbro, Inc. common stock owned by Time Warner and
that pay cash distributions at a rate of 4% per annum and (c)
available cash and equivalents (the "1995 Convertible Debt
Refinancing"). The February 1996 Redemption was financed with (a)
$557 million of net proceeds raised in December 1995 from the issuance
of Time Warner-obligated mandatorily redeemable preferred securities
of a subsidiary ("Preferred Trust Securities") that pay cash
distributions at a rate of 8-7/8% per annum and (b) proceeds raised
from the $750 million issuance of debentures in January 1996,
consisting of (1) $400 million principal amount of 6.85% debentures due
2026, which are redeemable at the option of the holders thereof in
2003, (2) $200 million principal amount of 8.3% discount debentures
due 2036, which do not pay cash interest for the first twenty years,
(3) $166 million principal amount of 7.48% debentures due 2008 and
(4) $150 million principal amount of 8.05% debentures due 2016
(collectively referred to herein as the "January 1996 Debentures").
The issuance of the Preferred Trust Securities and the January 1996
Debentures, together with the February 1996 Redemption, are
collectively referred to herein as the "1996 Convertible Debt
Refinancing". The 1995 Convertible Debt Refinancing and the 1996
Convertible Debt Refinancing are collectively referred to herein as
the "Convertible Debt Refinancings";
(ii) on January 4, 1996 (as previously reported on the Form
8-K of Time Warner dated January 4, 1996), Time Warner completed its
acquisition of Cablevision Industries Corporation ("CVI") and certain
affiliated entities of CVI (the "Gerry Companies") (the "CVI
Acquisition"). CVI and the Gerry Companies owned cable television
systems serving approximately 1.3 million subscribers;
(iii) on October 2, 1995 and September 5, 1995 (as previously
reported on the Form 8-K of Time Warner dated August 31, 1995),
Toshiba Corporation ("Toshiba") and ITOCHU Corporation ("ITOCHU"),
respectively, exchanged (a) their 5.61% pro rata equity interests in
TWE, (b) their 6.25% residual equity interests in TW Service Holding
I, L.P. and TW Service Holding II, L.P., each of which owned certain
assets related to the TWE businesses and (c) their options to increase
their interests in TWE under certain circumstances for, in the case of
ITOCHU, 6.2 million shares of Time Warner Series G Convertible
Preferred Stock and 1.8 million shares of Time Warner Series H
Convertible Preferred Stock and, in the case of Toshiba, 7.0 million
shares of Time Warner Series I Convertible Preferred Stock and $10
million in cash (the "ITOCHU/Toshiba Transaction"). As a result of
the ITOCHU/Toshiba Transaction, Time Warner and certain of its wholly-
owned subsidiaries, collectively, now own 74.49% of the pro rata
priority capital and residual equity interests in TWE and certain
additional senior and junior priority capital interests. A subsidiary
of U S WEST, Inc. owns the remaining 25.51% of the pro rata priority
capital and residual equity limited partnership interests in TWE;
(iv) on August 15, 1995, Time Warner redeemed all of its $1.8
billion principal amount of outstanding Redeemable Reset Notes due
August 15, 2002 (the "Reset Notes") in exchange for new securities
(the "Exchange Securities"), consisting of approximately $454 million
aggregate principal amount of Floating Rate Notes due August 15, 2000,
approximately $272 million aggregate principal amount of 7.975% Notes
due August 15, 2004, approximately $545 million aggregate principal
amount of 8.11% Debentures due August 15, 2006, and approximately $545
million aggregate principal amount of 8.18% Debentures due August 15,
2007 (the "Reset Notes Refinancing");
3
<PAGE> 4
(v) on July 6, 1995 (as previously reported on the Form 8-K of Time
Warner dated July 6, 1995), Time Warner acquired KBLCOM Incorporated
("KBLCOM") which owned cable television systems serving approximately
700,000 subscribers and a 50% interest in Paragon Communications
("Paragon"), which owned cable television systems serving an additional
972,000 subscribers (the "KBLCOM Acquisition"). The other 50% interest in
Paragon was already owned by TWE;
(vi) on June 30, 1995, a wholly-owned subsidiary of Time Warner, TWE
and the TWE-Advance/Newhouse Partnership (as defined below) executed a
five-year revolving credit facility (the "New Credit Agreement"). The New
Credit Agreement enabled such entities to refinance certain indebtedness
assumed in connection with the Acquisitions (as defined below), to
refinance TWE's indebtedness under a pre-existing bank credit agreement and
to finance the ongoing working capital, capital expenditures and other
corporate needs of each borrower (the "Bank Refinancing"). The Convertible
Debt Refinancings, the Reset Notes Refinancing, and the Bank Refinancing
are referred to herein collectively as the "Debt Refinancings";
(vii) on June 23, 1995, (a) Six Flags Entertainment Corporation ("Six
Flags") was recapitalized, (b) TWE sold a 51% interest in Six Flags to an
investment group led by Boston Ventures and (c) TWE granted certain
licenses to Six Flags (collectively, the "Six Flags Transaction");
(viii) on May 2, 1995, Time Warner acquired Summit Communications
Group, Inc., which owned cable television systems serving approximately
162,000 subscribers (the "Summit Acquisition");
(ix) on April 1, 1995 (as previously reported on the Form 8-K of Time
Warner dated April 1, 1995), TWE closed its transaction (the "TWE-A/N
Transaction") with the Advance/Newhouse Partnership ("Advance/Newhouse")
pursuant to which TWE and Advance/Newhouse formed the Time Warner
Entertainment-Advance/Newhouse Partnership, a New York general partnership
(the "TWE-Advance/Newhouse Partnership"), and to which Advance/Newhouse
and TWE contributed cable television systems (or interests therein)
serving approximately 4.5 million subscribers, as well as certain foreign
cable investments and certain programming investments that included
Advance/Newhouse's 10% interest in Primestar Partners, L.P. TWE owns a
two-thirds equity interest in the TWE-Advance/Newhouse Partnership and
is the managing partner and Advance/Newhouse owns a one-third equity
interest; and
(x) during 1995, TWE entered into agreements to sell, or announced its
intention to sell, 17 of its unclustered cable television systems serving
approximately 180,000 subscribers, of which certain of the transactions
closed during 1995 and the remaining transactions, which are not material,
have closed or are expected to close in 1996 (the "Unclustered Cable
Transactions").
The Unclustered Cable Transactions and the Six Flags Transaction are
referred to herein as the "Asset Sale Transactions"; the Summit Acquisition,
KBLCOM Acquisition and CVI Acquisition are referred to herein as the
"Acquisitions"; the Acquisitions and the TWE-A/N Transaction are referred to
herein as the "Cable Transactions" and the TBS Transaction, the ITOCHU/Toshiba
Transaction, the Asset Sale Transactions, the Cable Transactions and the Debt
Refinancings are referred to herein as the "Transactions".
The pro forma consolidated condensed balance sheet of New Time Warner at
March 31, 1996 gives effect to the TBS Transaction as if it occurred at such
date. The pro forma consolidated condensed statement of operations of New Time
Warner for the three months ended March 31, 1996 gives effect to the TBS
Transaction and the 1996 Convertible Debt Refinancing in each case as if the
transactions occurred at the beginning of such period. The pro forma
consolidated condensed statement of operations of New Time Warner for the year
ended December 31, 1995 gives effect to the TBS Transaction, the
ITOCHU/Toshiba Transaction, the Acquisitions, the Debt Refinancings, the Asset
Sale Transactions and the TWE-A/N Transaction, in each case as if the
transactions occurred at the beginning of such period. The pro forma
consolidated condensed financial statements should be read in conjunction with
(i) the historical financial statements of Time Warner and TWE, including the
notes thereto, which are contained in Time Warner's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996 and Time Warner's Annual Report on
Form 10-K for the year ended December 31, 1995, (ii) the historical financial
statements of TBS, including the notes thereto, which are contained in TBS's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996 and TBS's
Annual Report on Form 10-K for the year ended December 31, 1995, and (iii)
the historical financial statements and pro forma consolidated condensed
financial statements included or incorporated by reference in Time Warner's
Current Report on Form 8-K dated May 15, 1996. Time Warner is subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information filed with the Commission
can be inspected and copied at the public reference facilities maintained by
the Commission and at the offices of the New York Stock Exchange, Inc. and the
Pacific Stock Exchange, Inc.
The pro forma consolidated condensed financial statements are presented for
informational purposes only and are not necessarily indicative of the financial
position or operating results that would have occurred if the transactions had
been consummated as of the dates indicated, nor are they necessarily indicative
of future financial condition or operating results.
4
<PAGE> 5
Pro forma adjustments for the TBS Transaction reflect (i) the issuance by
New Time Warner of approximately 172.8 million shares of New Time Warner common
stock pursuant to the TBS Merger, including 50.6 million shares of Series LMC
Common Stock of New Time Warner ("LMC Voting Common Stock") to be issued to
Liberty Media Corporation ("LMC") in exchange for TBS capital stock, (ii) the
issuance by New Time Warner of an additional five million shares of LMC Voting
Common Stock in consideration for an option (the "SSSI Option"), exercisable
for six years, to purchase a subsidiary of LMC that currently uplinks and
distributes the signal of TBS's television station, WTBS, (iii) the issuance by
New Time Warner of options to purchase approximately 13 million shares of New
Time Warner Common Stock upon the assumption of all outstanding TBS stock
options and (iv) the assumption or incurrence of approximately $2.5 billion of
indebtedness, including $268 million of the outstanding TBS zero coupon
subordinated convertible notes due 2007 (the "TBS LYONs"). The TBS LYONs
currently may be converted at the option of the holders into an additional 7.4
million shares of Class B Common Stock of TBS. If all TBS LYONs were so
converted prior to the consummation of the TBS Transaction, (i) New Time
Warner's pro forma shareholders' equity at March 31, 1996 would be increased by
approximately $225 million to reflect the issuance of approximately 5.6 million
additional shares of New Time Warner Common Stock, (ii) New Time Warner's pro
forma indebtedness at March 31, 1996 would be reduced by $268 million and (iii)
New Time Warner's pro forma loss before extraordinary item and loss before
extraordinary item per common share for the three months ended March 31, 1996
and the year ended December 31, 1995 would be reduced by $3 million ($.01 per
common share) and $11 million ($.03 per common share), respectively.
The TBS Transaction will be accounted for by the purchase method of
accounting for business combinations and, accordingly, the estimated cost to
acquire such assets will be allocated to the underlying net assets in
proportion to their respective fair values. The valuations and other studies
which will provide the basis for such an allocation have not been completed.
As more fully described in the notes to the pro forma consolidated condensed
financial statements, a preliminary allocation of the excess of cost over the
book value of the net assets to be acquired has been made to goodwill.
5
<PAGE> 6
NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
MARCH 31, 1996
(MILLIONS, UNAUDITED)
<TABLE>
<CAPTION>
TBS TRANSACTION
------------------------------ NEW
TIME WARNER TBS PRO FORMA TIME WARNER
HISTORICAL HISTORICAL(A) ADJUSTMENTS(B) PRO FORMA
---------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and equivalents ....................... $ 644 $ 68 $ - $ 712
Other current assets ....................... 2,831 1,275 (162) 3,944
------- ------ ------ -------
Total current assets ....................... 3,475 1,343 (162) 4,656
Investments in and amounts due to
and from Entertainment Group ............. 5,931 - - 5,931
Other investments .......................... 2,485 - (536) 1,949
Noncurrent inventories ..................... - 1,928 - 1,928
Property, plant and equipment .............. 1,453 355 - 1,808
Cable television franchises ................ 4,033 - - 4,033
Goodwill ................................... 5,857 263 7,597 13,717
Other assets ............................... 1,598 430 - 2,028
------- ------ ------ -------
Total assets ............................... $24,832 $4,319 $6,899 $36,050
======= ====== ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities .................. $ 2,762 $ 752 $ - $ 3,514
Long-term debt ............................. 11,457 2,495 95 14,047
Deferred income taxes ...................... 4,065 425 - 4,490
Other long-term liabilities ................ 1,272 189 - 1,461
Company-obligated mandatorily
redeemable preferred
securities of subsidiaries(1) ............ 949 - - 949
Shareholders' equity:
Preferred stock .......................... 36 - - 36
Common stock ............................. 393 - (387) 6
Paid-in capital .......................... 6,199 - 7,649 13,848
Unrealized gains on certain
marketable securities .................. 175 - - 175
TBS shareholders' equity ................. - 458 (458) -
Accumulated deficit ...................... (2,476) - - (2,476)
------- ------ ------ -------
Total shareholders' equity ................. 4,327 458 6,804 11,589
------- ------ ------ -------
Total liabilities and
shareholders' equity ..................... $24,832 $4,319 $6,899 $36,050
======= ====== ====== =======
</TABLE>
- ----------------------
(1) Includes $374 million of preferred securities that are redeemable for cash
or, at Time Warner's option, approximately 12.1 million shares of Hasbro,
Inc. common stock owned by Time Warner.
See accompanying notes.
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<PAGE> 7
NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1996
(MILLIONS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
TBS TRANSACTION
------------------------------ NEW
TIME WARNER DEBT PRE-TBS TBS PRO FORMA TIME WARNER
HISTORICAL REFINANCINGS(C) PRO FORMA HISTORICAL(D) ADJUSTMENTS(E) PRO FORMA
---------- --------------- --------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues..................................... $2,068 $ - $2,068 $ 775 $ - $2,843
Cost of revenues* ........................... 1,277 - 1,277 521 53 1,851
Selling, general and administrative* ........ 681 681 225 - 906
------ ------ ------ ----- ----- ------
Operating expenses........................... 1,958 - 1,958 746 53 2,757
------ ------ ------ ----- ----- ------
Business segment operating income (loss)..... 110 - 110 29 (53) 86
Equity in pretax income of
Entertainment Group........................ 116 - 116 - - 116
Interest and other, net...................... (296) 7 (289) (47) 8 (328)
Corporate expenses........................... (18) - (18) - - (18)
------ ------ ------ ----- ----- ------
Income (loss) before income taxes............ (88) 7 (81) (18) (45) (144)
Income tax (provision) benefit............... (5) (3) (8) 8 (1) (1)
------ ------ ------ ----- ----- ------
Income (loss) before extraordinary item...... (93) 4 (89) (10) (46) (145)
Preferred dividend requirements.............. (34) - (34) - - (34)
------ ------ ------ ----- ----- ------
Income (loss) before extraordinary item
applicable to common shares................ $ (127) $ 4 $ (123) $ (10) $ (46) $ (179)
====== ====== ====== ===== ===== ======
Income (loss) before extraordinary item per
common share............................... $ (.32) $ .01 $ (.31) $ (.31)
====== ====== ====== ======
Average common shares........................ 391.7 391.7 569.5
====== ====== ======
- -----------------
* Includes depreciation and amortization
expense of: ............................. $ 228 $ - $ 228 $ 45 $ 47 $ 320
====== ====== ====== ===== ===== ======
</TABLE>
See accompanying notes.
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<PAGE> 8
NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
ITOCHU/ SUBTOTAL
SUMMIT KBLCOM CVI DEBT TWE TOSHIBA TIME WARNER
TIME WARNER AQUISI- ACQUISI- ACQUISI- REFINANC- TRANSAC- TRANSAC- PRE-TBS
HISTORICAL TION(F) TION(G) TION(H) INGS(C) TIONS(I) TION(J) PRO FORMA
---------- ------- ------- ------- ------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues............................ $8,067 $ 22 $ 139 $ 514 $ - $ - $ - $8,742
Cost of revenues* .................. 4,682 15 110 429 - - - 5,236
Selling, general and
administrative* .................. 2,688 7 49 106 - - - 2,850
------ ----- ----- ----- ----- ----- ----- ------
Operating expenses.................. 7,370 22 159 535 - - - 8,086
------ ----- ----- ----- ----- ----- ----- ------
Business segment operating
income (loss)..................... 697 - (20) (21) - - - 656
Equity in pretax income of
Entertainment Group............... 256 - - - 13 17 - 286
Interest and other, net............. (877) (5) (46) (136) 56 - (29) (1,037)
Corporate expenses.................. (74) - - - - - - (74)
------ ----- ----- ----- ----- ----- ----- ------
Income (loss) before
income taxes...................... 2 (5) (66) (157) 69 17 (29) (169)
Income tax (provision)
benefit........................... (126) 1 24 38 (28) (6) 11 (86)
------ ----- ----- ----- ----- ----- ----- ------
Income (loss) before
extraordinary item................ (124) (4) (42) (119) 41 11 (18) (255)
Preferred dividend
requirements...................... (52) (4) (21) (24) - - (42) (143)
------ ----- ----- ----- ----- ----- ----- ------
Income (loss) before
extraordinary item applicable
to common shares.................. $ (176) $ (8) $ (63) $(143) $ 41 $ 11 $ (60) $ (398)
====== ===== ===== ===== ===== ===== ===== ======
Income (loss) before
extraordinary item
per common share.................. $ (.46) $(.02) $(.17) $(.36) $ .11 $ .03 $(.15) $(1.02)
====== ===== ===== ===== ===== ===== ===== ======
Average common shares.............. 383.8 .5 .5 2.9 - - - 387.7
====== ===== ===== ===== ===== ===== ===== ======
- ---------------------
* Includes depreciation and
amortization expense of: ......... $ 559 $ 11 $ 84 $ 281 $ - $ - $ - $ 935
====== ===== ===== ===== ===== ===== ===== ======
</TABLE>
See accompanying notes.
-8-
<PAGE> 9
NEW TIME WARNER
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
(MILLIONS, EXCEPT PER SHARE AMOUNTS; UNAUDITED)
<TABLE>
<CAPTION>
SUBTOTAL TBS TRANSACTION
TIME WARNER ------------------------------- NEW
PRE-TBS TBS PRO FORMA TIME WARNER
PRO FORMA HISTORICAL(D) ADJUSTMENTS(E) PRO FORMA
--------- ------------- -------------- ---------
<S> <C> <C> <C> <C>
Revenues ............................................................. $8,742 $3,437 $ - $12,179
Cost of revenues* .................................................... 5,236 2,166 235 7,637
Selling, general and administrative* ................................. 2,850 889 - 3,739
------ ------ ----- -------
Operating expenses ................................................... 8,086 3,055 235 11,376
------ ------ ----- -------
Business segment operating income (loss) ............................. 656 382 (235) 803
Equity in pretax income of Entertainment Group ....................... 286 - - 286
Interest and other, net .............................................. (1,037) (209) (3) (1,249)
Corporate expenses ................................................... (74) - - (74)
------ ------ ----- -------
Income (loss) before income taxes .................................... (169) 173 (238) (234)
Income tax (provision) benefit ....................................... (86) (70) 24 (132)
------ ------ ----- -------
Income (loss) before extraordinary item .............................. (255) 103 (214) (366)
Preferred dividend requirements ...................................... (143) - - (143)
------ ------ ----- -------
Income (loss) before extraordinary item
applicable to common shares ........................................ $ (398) $ 103 $(214) $ (509)
====== ====== ===== =======
Loss before extraordinary item per common share ...................... $(1.02) $ (.90)
====== =======
Average common shares ................................................ 387.7 565.5
====== =======
- ---------------------
* Includes depreciation and amortization expense of: ................. $ 935 $ 189 $ 188 $ 1,312
====== ====== ===== =======
</TABLE>
See accompanying notes.
-9-
<PAGE> 10
NOTES TO THE NEW TIME WARNER PRO FORMA CONSOLIDATED
CONDENSED FINANCIAL STATEMENTS
(A) Reflects the historical financial position of TBS at March 31, 1996,
including $2.495 billion of long-term indebtedness that will be assumed
pursuant to the TBS Transaction.
(B) Pro forma adjustments to record the TBS Transaction reflect (i) a
reclassification in shareholders' equity from common stock to paid-in
capital to reflect the reduction in the par value of common stock from $1.00
per share to $.01 per share, (ii) the issuance by New Time Warner of (A) 172.8
million shares of New Time Warner common stock pursuant to the TBS Merger,
including 50.6 million shares of LMC Voting Common Stock to be issued to LMC
in exchange for TBS capital stock, (B) an additional five million shares of LMC
Voting Common Stock to be issued to LMC in consideration for the SSSI Option
and (C) options to purchase approximately 13 million shares of New Time Warner
Common Stock upon the assumption of all outstanding TBS stock options, valued
at an aggregate of $7.262 billion for pro forma purposes based on a New Time
Warner Common Stock price of $39.75 per share, (iii) the writeoff of
approximately $263 million of pre-existing goodwill of TBS and approximately
$162 million of TBS inventory to conform TBS's accounting policy with respect
to the capitalization and amortization of film exploitation costs to Time
Warner's accounting policy, (iv) the incurrence of approximately $95 million
of additional indebtedness for the payment of transaction costs and other
related liabilities, (v) the allocation of the excess of the purchase price
over the book value of the net assets acquired of $7.860 billion to goodwill
and (vi) the elimination of (x) Time Warner's historical investment in TBS in
the amount of $536 million and (y) TBS's historical shareholders' equity in
the amount of $458 million.
(C) Pro forma adjustments to record the Debt Refinancings for the three
months ended March 31, 1996 reflect interest savings of $7 million resulting
from (i) the issuance of the January 1996 Debentures for approximately $750
million of proceeds and (ii) the use of $721 million for such proceeds, together
with $557 million of available cash and equivalents related to the issuance of
the Preferred Trust Securities, to redeem $1.226 billion principal amount of
8.75% Convertible Debentures for an aggregate redemption price of $1.278
billion, including redemption premiums and accrued interest thereon of $52
million.
Pro forma adjustments to record the Debt Refinancings for the year ended
December 31, 1995 reflect savings in financing costs of $69 million from (i)
$5.134 billion of aggregate borrowings under the New Credit Agreement which
were used: (a) to repay or redeem $1.184 billion of indebtedness assumed in the
CVI Acquisition, plus redemption premiums thereon of $16 million, (b) to
refinance $1.086 billion of indebtedness assumed or incurred in the KBLCOM
Acquisition, plus redemption premiums and accrued interest thereon of $19
million, (c) to repay $204 million of Paragon indebtedness, funded equally by
Time Warner and TWE, (d) to repay $2.575 billion of indebtedness under a
pre-existing bank credit agreement and (e) to pay for $50 million of financing
costs, (ii) the redemption of $2.226 billion principal amount of 8.75%
Convertible Debentures for an aggregate redemption price of $2.341 billion,
including redemption premiums and accrued interest thereon of $115 million,
using (a) proceeds from the $750 million issuance of the January 1996
Debentures, (b) $557 million of net proceeds raised from the issuance of the
Preferred Trust Securities in December 1995, (c) $363 million of net proceeds
raised from the issuance of the PERCS in August 1995, (d) approximately $500
million of proceeds raised from the issuance of the 7.75% Notes in June 1995
and (e) approximately $171 million of available cash and equivalents and (iii)
the August 1995 noncash redemption of $1.8 billion principal amount of
outstanding Reset Notes in exchange for an equal amount of Exchange Securities.
All pro forma adjustments to record the Debt Refinancings for the three months
ended March 31, 1996 and the year ended December 31, 1995 reflect the
incremental effect on Time Warner's operating results from each refinancing
that had closed during the period.
(D) Reflects the historical operating results of TBS for the three months
ended March 31, 1996 and the year ended December 31, 1995, including certain
reclassifications to conform to Time Warner's financial statement presentation.
(E) Pro forma adjustments to record the TBS Transaction for the three
months ended March 31, 1996 and the year ended December 31, 1995 reflect (i)
the exclusion of $1 million and $10 million, respectively, of merger costs
directly related to the TBS Transaction expensed by TBS in each respective
period, (ii) an increase of $53 million and $235 million, respectively, in cost
of revenues consisting of (a) a $2 million and $8 million reduction,
respectively, of TBS's historical amortization of pre-existing goodwill, (b) a
$49 million and $196 million increase, respectively, in amortization with
respect to the excess cost to acquire TBS that has been allocated to goodwill
and amortized on a straight-line basis over a forty-year period and (c) a $6
million and $47 million increase, respectively, in the amortization of
capitalized film exploitation costs to conform TBS's accounting policy to Time
Warner's accounting policy, (iii) an increase of $2 million and $5 million,
respectively, in interest expense on the approximately $95 million of
additional indebtedness for the payment of transaction costs and other related
liabilities, (iv) a decrease of $9 million and an increase of $8 million,
respectively, in interest and other, net, due to the elimination of Time
Warner's historical equity accounting for its investment in TBS and (v) an
increase of $1 million and a decrease of $24 million, respectively, in income
tax expense as a result of income tax benefits provided at a 41% tax rate.
(F) Reflects the historical operating results of Summit for the four-month
pre-acquisition period ending May 2, 1995, as well as certain pro forma
adjustments directly related to the Summit Acquisition. The pro forma
adjustments reflect (i) the exclusion of an aggregate $15 million of net income
relating to (A) Summit's broadcasting operations that were sold by Summit prior
to the closing of the Summit Acquisition and (B) reductions in Summit's
corporate expenses principally relating to the closure of Summit's corporate
facilities and the termination of related personnel as a direct result of the
integration of Summit's operations into Time Warner's and TWE's operating
structure, (ii) an increase of $8 million in cost of revenues with respect to
the amortization of the excess cost to acquire Summit that has been allocated
to (a) cable television franchises in the amount of $372 million and amortized
on a straight-line basis over a twenty-year period and (b) goodwill in the
amount of $146 million and amortized on a straight-line basis over a forty-year
period, (iii) an increase of $1 million in selling, general and administrative
expenses with respect to payments to be made to TWE for its management of
Summit's cable television systems, (iv) a decrease of $3 million in income tax
expense as a result of income tax benefits provided at a 41% tax rate on the
additional amortization expense and management fees to be paid to TWE and (v)
an increase of $4 million in preferred dividend requirements of the Series C
Preferred Stock issued in the Summit Acquisition.
(G) Reflects the historical operating results of KBLCOM for the six-month
pre-acquisition period ending July 6, 1995, as well as certain pro forma
adjustments directly related to the KBLCOM Acquisition. The pro forma
adjustments reflect (i) the exclusion of an aggregate $19 million of net losses
relating to (a) interest costs on the portion of KBLCOM's indebtedness that has
not been assumed by Time Warner and (b) reductions in KBLCOM corporate expenses
principally relating to the closure of KBLCOM's corporate and regional
facilities and the termination of related personnel as a direct result of the
integration of KBLCOM's operations into Time Warner's and TWE's operating
structure, (ii) an increase of $39 million in cost of revenues consisting of a
$7 million reduction of KBLCOM's historical amortization of pre-existing
goodwill and a $46 million increase in amortization with respect to the excess
cost to acquire KBLCOM that has been allocated to (a) investments in the amount
of $655 million and amortized on a straight-line basis over a twenty-year
period, (b) cable television franchises in the amount of $859 million and
amortized on a straight-line basis over a twenty-year period and (c) goodwill in
the amount of $586 million and amortized on a straight-line basis over a
forty-year period, (iii) an increase of $4 million in selling, general and
administrative expenses with respect to payments to be made to TWE for its
management of certain of KBLCOM's cable television systems, (iv) a decrease of
$17 million in income tax expense as a result of income tax benefits provided
at a 41% tax rate on the additional amortization expense and management fees to
be paid to TWE and (v) an increase of $21 million in preferred dividend
requirements of the Time Warner Series D Preferred Stock issued in the KBLCOM
Acquisition.
(H) Reflects the historical operating results of CVI and the Gerry
Companies for the year ended December 31, 1995, as well as certain pro forma
adjustments directly related to the CVI Acquisition. The pro forma adjustments
reflect (i) the exclusion of $97 million of net losses with respect to costs
directly related to the CVI Acquisition and reductions in the corporate
expenses of CVI and the Gerry Companies principally relating to the closing of
certain corporate and regional facilities and the termination of related
personnel as a direct result of the integration of the operations of CVI and
the Gerry Companies into Time Warner's and TWE's operating structure, (ii) an
increase of $108 million in cost of revenues consisting of a $12 million
reduction of CVI's historical amortization of pre-existing goodwill and a $120
million increase in amortization with respect to the excess cost to acquire CVI
and the Gerry Companies that has been allocated to (a) cable television
franchises in the amount of $2.061 billion and amortized on a straight-line
basis over a twenty-year period and (b) goodwill in the amount of $688 million
and amortized on a straight-line basis over a forty-year period, (iii) an
increase of $15 million in selling, general and administrative expenses with
respect to payments to be made to TWE for its management of the cable
television systems of CVI and the Gerry Companies, (iv) an increase of $19
million in interest expense on the $277 million of borrowings under the New
Credit Agreement, which were used to consummate the CVI Acquisition and to pay
for transaction costs and other related liabilities, (v) a decrease of $57
million in income tax expense as a result of income tax benefits provided at a
41% tax rate on the additional amortization expense, interest expense and
management fees to be paid to TWE and (vi) an increase of $24 million in
preferred dividend requirements of the Time Warner Series E Preferred Stock and
Time Warner Series F Preferred Stock issued in the CVI Acquisition.
(I) Pro forma adjustments for the year ended December 31, 1995 to record
$17 million of increased income from Time Warner's equity in the pretax income
of the Entertainment Group reflect the aggregate effect on TWE's operating
results from (i) the TWE-A/N Transaction, (ii) the fees to be earned by TWE
with respect to its management of certain of Time Warner's cable television
systems and (iii) the Asset Sale Transactions, as more fully described in the
notes to the Entertainment Group pro forma consolidated condensed financial
statements contained in the Form 8-K of Time Warner dated May 15, 1996.
TWE's consolidation of Paragon, as more fully described in the notes to the
Entertainment Group pro forma consolidated condensed financial statements
contained in the Form 8-K of Time Warner dated May 15, 1996, has no pro forma
effect on the net income of TWE and, accordingly, the consolidation of Paragon
has no effect on the pro forma operating results of Time Warner for the year
ended December 31, 1995.
Income taxes of $6 million have been provided in the year ended December 31,
1995 at a 41% tax rate on the aggregate increase in income from Time Warner's
equity in the pretax income of the Entertainment Group, adjusted for certain
temporary differences.
(J) Pro forma adjustments to record the ITOCHU/Toshiba Transaction for the
year ended December 31, 1995 reflect (i) an increase of $29 million in interest
and other, net, consisting of (a) an increase of $16 million with respect to
the amortization of the $417 million aggregate excess cost to acquire the
minority interests in TWE held by ITOCHU and Toshiba, which will be amortized
on a straight-line basis over a twenty-year period and (b) and increase of $13
million with respect to the elimination of historical amortization related to
Time Warner's excess interest in the net assets of TWE over the net book value
of its investment in TWE, which resulted from the initial investments in TWE by
ITOCHU and Toshiba, (ii) a decrease of $11 million in income tax expense as a
result of income tax benefits provided at a 41% tax rate and (iii) an increase
of $42 million in preferred dividend requirements of the preferred stock issued
in the ITOCHU/Toshiba Transaction.
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<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned, thereto duly authorized.
TURNER BROADCASTING SYSTEM, INC.
(Registrant)
Date: June 26, 1996 By: /s/ William S. Ghegan
--------------------------------
Name: William S. Ghegan
Title: Vice President and Controller
and Chief Accounting Officer
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