<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File No. 1-8911
TURNER BROADCASTING SYSTEM, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-0950695
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
One CNN Center
Atlanta, Georgia 30303
- ------------------------------- ---------------------------------
(Address of principal (Zip Code)
executive offices)
(404) 827-1700
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days:
Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Outstanding at
Class June 30, 1996
- ------------------------------- ---------------------------------
Class A Common Stock, par
value $0.0625 68,330,388
Class B Common Stock, par
value $0.0625 140,079,437
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED BALANCE SHEETS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 118,734 $ 85,185
Accounts receivable, less allowance of
$41,711 and $38,503
Unaffiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 399,972 464,923
Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78,494 92,657
Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 620,829 567,031
Installment contracts receivable, less
allowance of $6,884 and $7,633 . . . . . . . . . . . . . . . . . . . . 55,757 47,928
Prepaid expense and other current assets . . . . . . . . . . . . . . . . . 136,831 135,597
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,410,617 1,393,321
Film costs, less current portion . . . . . . . . . . . . . . . . . . . . . 2,042,333 1,936,565
Property and equipment, less accumulated
depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 368,488 358,528
Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . 419,867 427,611
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 246,803 279,375
---------- ----------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,488,108 $4,395,400
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 58,677 $ 64,704
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,981 292,167
Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121,312 83,772
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,636 63,693
Participants' share and royalties payable . . . . . . . . . . . . . . . . . 105,333 107,254
Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,791 33,011
Film contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 85,505 69,802
Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 1,506 1,543
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 98,229 123,693
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 821,970 839,639
Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . 2,600,165 2,479,770
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 421,104 421,685
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 173,916 216,627
---------- ----------
TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 4,017,155 3,957,721
TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 470,953 437,679
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $4,488,108 $4,395,400
========== ==========
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
2
<PAGE> 3
TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, JUNE 30,
------------------------ -----------------------
1996 1995 1996 1995
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue
Unaffiliated . . . . . . . . . . . . . . . . . . . . . $776,366 $694,634 $1,431,115 $1,278,485
Affiliated . . . . . . . . . . . . . . . . . . . . . . 123,652 103,252 244,104 229,716
-------- -------- ---------- ----------
900,018 797,886 1,675,219 1,508,201
-------- -------- ---------- ----------
Cost of operations . . . . . . . . . . . . . . . . . . . . 555,215 486,718 1,051,631 897,398
Selling, general and administrative . . . . . . . . . . . . 248,782 201,124 474,171 390,362
Equity in loss of unconsolidated entities . . . . . . . . . 1,423 2,668 4,449 7,737
Costs of accounts receivable
securitization program . . . . . . . . . . . . . . . . 5,049 3,258 8,803 3,258
Time Warner merger costs . . . . . . . . . . . . . . . . . 5,762 - 6,713 -
Depreciation of property and equipment and
amortization of intangible assets . . . . . . . . . . 24,196 20,457 45,488 36,834
Interest expense, net of interest income . . . . . . . . . 38,951 46,576 81,183 97,284
-------- -------- ---------- ----------
879,378 760,801 1,672,438 1,432,873
-------- -------- ---------- ----------
Income before provision
for income taxes . . . . . . . . . . . . . . . . 20,640 37,085 2,781 75,328
Provision for income taxes . . . . . . . . . . . . . . . . 9,369 15,385 1,318 31,638
-------- -------- ---------- ----------
Net income . . . . . . . . . . . . . . . . . . . . . $ 11,271 $ 21,700 $ 1,463 $ 43,690
======== ======== ========== ==========
Earnings per common share and
common stock equivalent
Net income . . . . . . . . . . . . . . . . $ 0.04 $ 0.08 $ 0.01 $ 0.15
======== ======== ========== ==========
Weighted average number of common shares
outstanding, including conversion of
common stock equivalents,
when applicable . . . . . . . . . . . . . . . . . . . 287,950 283,030 287,343 282,688
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
3
<PAGE> 4
TURNER BROADCASTING SYSTEM, INC.
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
UNAUDITED
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash provided by operations before changes
in film costs and liabilities, net . . . . . . . . . . . . . . . . . . . . . $ 146,122 $ 343,613
Changes in film costs and liabilities, net
Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . . . 37,674 45,328
Produced programming . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,735) (64,505)
Licensed program and distribution rights . . . . . . . . . . . . . . . . . (13,297) (9,772)
--------- ---------
Net cash provided by (used for) operations . . . . . . . . . . . . . . . . . . . (31,236) 314,664
--------- ---------
Cash provided by (used for) investing activities
Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . 365 6,180
Acquisitions and advances to unconsolidated entities . . . . . . . . . . . . (2,232) (7,051)
Additions to property and equipment . . . . . . . . . . . . . . . . . . . . (68,463) (50,245)
--------- ---------
Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (70,330) (51,116)
--------- ---------
Cash provided by (used for) financing activities
Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,105 15,000
Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (278) (255,224)
Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (9,893) (9,809)
Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . 5,181 2,398
--------- ---------
Net cash provided by (used for) financing activities . . . . . . . . . . . . . . 135,115 (247,635)
--------- ---------
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . 33,549 15,913
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 85,185 52,895
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 118,734 $ 68,808
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES:
Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 19,536 $ 49,809
Net interest paid, including interest
capitalized of $8,865 and $8,503 . . . . . . . . . . . . . . . . . . . . . . 84,833 98,338
Conversion of convertible subordinated debentures
originally issued by a wholly-owned subsidiary . . . . . . . . . . . . . . . 29,075 -
</TABLE>
See accompanying Notes to Consolidated Condensed Financial Statements.
4
<PAGE> 5
TURNER BROADCASTING SYSTEM, INC.
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
UNAUDITED
NOTE 1. PREPARATION OF INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The consolidated condensed financial statements included herein have
been prepared by Turner Broadcasting System, Inc. (the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission. In the
opinion of management, the accompanying consolidated condensed financial
statements contain all adjustments, which are of a normal recurring nature,
necessary for a fair presentation of such financial statements. Although
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations,
management believes that the disclosures are adequate to make the information
presented not misleading. For further information, reference is made to the
consolidated financial statements and the notes thereto incorporated by
reference in the Company's Form 10-K for the year ended December 31, 1995.
Certain prior year amounts have been reclassified to conform to the
current year presentation.
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") 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 $0.125 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.
5
<PAGE> 6
In connection with the FTC's review of the Mergers and certain related
transactions, the Company, Time Warner and TCI have entered into an agreement
in principle with respect to a consent order which, if implemented as currently
contemplated, will require that certain amendments be made to the Merger
Agreement and such related agreements entered into by the Company, Time Warner
and Liberty Media Corporation ("LMC") and its affiliates. Such amendments
include (i) restrictions, under certain circumstances, on the amount and type
of securities of New Time Warner that LMC and its affiliates can hold following
the Mergers, (ii) limitations on the extension of existing affiliation
agreements pursuant to which Tele-Communications, Inc. and its affiliates
distribute the programming produced by the Company and (iii) restrictions on
certain actions by Time Warner with respect to the distribution and pricing of
programming services.
As a result of the arrangements among R.E. Turner, the Company and
Time Warner 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, holders of a sufficient number of
shares of the Company's capital stock of each class have agreed 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 approval of the Merger Agreement to assure approval by the
Company's shareholders, regardless of the vote of any other shareholders of the
Company. The LMC Agreement, however, provides that the 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. It is expected that the LMC
Agreement will be amended to provide for the changes required in connection
with the consent order described above. Also 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.
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
$65,000,000) 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.
NOTE 3. FILM COSTS
The following table sets forth the components of unamortized film
costs (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . $ 980,087 $1,017,761
Produced programming
Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 383,909 397,639
Completed and not released . . . . . . . . . . . . . . . . . . . . . 62,903 73,706
In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 693,028 504,997
Episodic television . . . . . . . . . . . . . . . . . . . . . . . . 116,374 101,430
Licensed program and distribution rights . . . . . . . . . . . . . . 315,653 302,370
Prepaid licensed program rights . . . . . . . . . . . . . . . . . . . 111,208 105,693
---------- ----------
2,663,162 2,503,596
Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 620,829 567,031
---------- ----------
$2,042,333 $1,936,565
========== ==========
</TABLE>
Episodic television includes serial television program costs. Prepaid
licensed program rights represent licensed program rights for which payments
have been made but the programming is not currently available for use. As these
programs become available for use they are reclassified to licensed program
rights.
6
<PAGE> 7
On the basis of the Company's anticipated total gross revenue
estimates, over 87% of released and episodic television produced programming
costs at June 30, 1996 will be amortized within the three-year period ending
June 30, 1999.
Amortization of film costs included in Cost of operations is composed of the
following (in thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Purchased program rights . . . . . . . . . . . . . . . $ 21,827 $ 22,583 $ 43,804 $ 44,946
Produced programming . . . . . . . . . . . . . . . . . 272,346 219,419 516,099 380,804
Licensed program and distribution
rights . . . . . . . . . . . . . . . . . . . . . . 31,078 23,440 62,885 50,520
Participants' share and royalties . . . . . . . . . . . 19,402 19,330 45,563 37,440
Non-cash amortization of certain
acquisition purchase adjustments . . . . . . . . . 1,447 499 3,342 3,292
-------- -------- -------- --------
$346,100 $285,271 $671,693 $517,002
======== ======== ======== ========
</TABLE>
NOTE 4. EARNINGS PER COMMON SHARE AND COMMON STOCK EQUIVALENT
Net income per common share and common stock equivalent is computed by dividing
net income applicable to common stock by the weighted average number of
outstanding shares of common stock and common stock equivalents, when dilutive,
during the applicable periods in 1996 and 1995. Common stock equivalents are
principally the incremental shares associated with the Class C Convertible
Preferred Stock (the "Class C Preferred Stock") and the outstanding stock
options. Fully-diluted income per share amounts are similarly computed,
but include the effect, when dilutive, of the Company's other potentially
dilutive securities. The Company's zero coupon subordinated convertible notes
and the convertible subordinated debentures originally issued by a wholly-owned
subsidiary are excluded from the fully-diluted calculations of net income per
common share for the three-month and six-month periods ended June 30, 1996 and
1995 due to their anti-dilutive effect. The difference between primary
and fully-diluted earnings per share is not significant.
NOTE 5. LONG-TERM DEBT
Long-term debt is summarized as follows (in thousands):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Bank credit facilities . . . . . . . . . . . . . . . . . . . . $1,575,000 $1,435,000
8 3/8% Senior Notes . . . . . . . . . . . . . . . . . . . . . 297,474 297,442
7.4% Senior Notes . . . . . . . . . . . . . . . . . . . . . . 249,681 249,666
8.4% Senior Debentures . . . . . . . . . . . . . . . . . . . . 199,847 199,846
Zero coupon subordinated convertible notes . . . . . . . . . . 273,253 263,694
Convertible subordinated debentures
originally issued by a wholly-owned
subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . - 29,075
Obligations under capital leases . . . . . . . . . . . . . . . 5,102 5,254
Other long-term debt . . . . . . . . . . . . . . . . . . . . . 1,314 1,336
---------- ----------
2,601,671 2,481,313
Less current portion . . . . . . . . . . . . . . . . . . . . . 1,506 1,543
---------- ----------
$2,600,165 $2,479,770
========== ==========
</TABLE>
On January 4, 1996, the Company called for redemption on February 5,
1996 all of the convertible subordinated debentures originally issued by a
wholly-owned subsidiary
7
<PAGE> 8
and subsequently assumed by the Company. All of the debentures outstanding,
which aggregated approximately $29,000,000, 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.
NOTE 6. STOCKHOLDERS' EQUITY
Stockholders' equity consists of the following components (in
thousands, except share data):
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
---------- ----------
<S> <C> <C>
Class C Convertible Preferred Stock, par
value $0.125; authorized 12,600,000 shares;
issued and outstanding 12,396,976 shares . . . . . . . . . . . $ 260,438 $ 260,438
Class A Common Stock, par value $0.0625;
authorized 75,000,000 shares; issued and
outstanding 68,330,388 shares . . . . . . . . . . . . . . . . 4,271 4,271
Class B Common Stock, par value $0.0625;
authorized 300,000,000 shares; issued and
outstanding 140,079,437 and 137,982,831
shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,755 8,624
Capital in excess of par value . . . . . . . . . . . . . . . . 1,125,754 1,084,181
Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (928,265) (919,835)
---------- ----------
Total stockholders' equity . . . . . . . . . . . . . . . . . $ 470,953 $ 437,679
========== ==========
</TABLE>
On February 16, 1996 and May 31, 1996, the Board of Directors declared
a cash dividend on the Company's outstanding shares of Class A Common Stock and
Class B Common Stock, payable at the rate of $0.0175 for each share held on the
record date. In addition, holders of the Company's outstanding Class C
Preferred Stock were entitled to an equivalent cash dividend of $0.105 for each
share held on the record date based on the number of shares of Class B Common
Stock which would be issued upon conversion of each share of Class C Preferred
Stock. Cash dividends of $4,944,000 and $4,949,000 were paid on March 29, 1996
and June 28, 1996, respectively, to shareholders of record at the close of
business on March 15, 1996 and June 14, 1996, respectively.
The Company's ability to pay cash dividends to holders of shares of the
Class A and Class B Common Stock and the Class C Preferred Stock is subject to
certain covenants in the Company's outstanding debt instruments. Currently, the
most restrictive of such covenants limits the maximum aggregate amount of
dividends permitted to be paid annually to such holders to $30,000,000.
NOTE 7. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM
In May 1995, the Company entered into an agreement with a financial
institution whereby the Company can sell on an ongoing basis up to $300,000,000
of an undivided percentage ownership interest in a designated pool of domestic
cable and advertising accounts receivable. The initial proceeds 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. 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
8
<PAGE> 9
cable and advertising accounts receivable consists of receivables that have
been designated as reserves principally for any potential credit costs that may
be incurred under the program. However, these costs are not expected to exceed
the full amount of the allowance for doubtful accounts which has been retained
in the consolidated condensed balance sheet of the Company, as the Company
expects to experience substantially the same risk of credit loss as if the
receivables had not been sold. The ongoing costs of the program are largely
based on the purchaser's level of investment and cost of funds. The costs of
the program are anticipated to be less than those the Company would have
otherwise incurred under the Company's unsecured revolving credit facilities.
Under the agreement, which was scheduled to expire in May 1996 but was renewed
in April 1996 for another one-year term, the Company performs collection and
administrative responsibilities related to the receivables sold as agent for
the purchaser.
As of June 30, 1996, the Company had sold an undivided interest in this
designated pool of domestic cable and advertising accounts receivable that
aggregated $300,000,000, generating net proceeds of $250,000,000. The estimated
total cost of the program for the sale of accounts receivable during the
three-month and six-month periods ended June 30, 1996, approximated $5,000,000
and $8,800,000, respectively, and is reflected as a reduction of operating
profit in the consolidated condensed statements of operations.
NOTE 8. INCOME TAXES
The 1991 and 1992 consolidated federal income tax returns of the
Company have been examined by the Internal Revenue Service (the "IRS"). As a
result of the examination, the IRS has issued a deficiency notice for
additional taxes. The IRS is prohibited from collecting the disputed tax until
the taxpayer has had an opportunity to seek a redetermination of the asserted
deficiency in court. On June 25, 1996, the Company filed a petition in U.S.
Tax Court contesting the notice as it believes the items in dispute have been
properly reported 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.
NOTE 9. SUBSEQUENT EVENTS
In connection with its acquisition of New Line Cinema Corporation ("New
Line Cinema") in January 1994, the Company assumed warrants (the "Warrants")
originally issued by New Line Cinema which were exercisable for 250,000 shares
of New Line Cinema common stock. Upon the assumption of the Warrants by the
Company, the Warrants became exercisable for an aggregate of 240,965 shares of
the Company's Class B Common Stock at an exercise price of $14.39 per share. On
July 17, 1996, all of the Warrants were exercised for an aggregate exercise
price of $3,467,000 and the Company issued an aggregate of 240,965 shares of
Class B Common Stock to the holders of the Warrants.
As of June 30, 1996, the Company owned a 33.1% limited partnership
interest in n-tv, a 24-hour German language news channel. On July 23, 1996, an
unaffiliated third-party agreed to acquire a 25% limited partnership interest
in n-tv. This transaction, which is subject to regulatory approval, will have
the effect of reducing the Company's ownership interest in n-tv to
approximately 25.5%. This transaction will not have a material impact on the
consolidated financial position or operating results of the Company.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
SOURCES AND USES OF CASH
Cash used for operations after changes in film costs and associated
liabilities for the six months ended June 30, 1996 aggregated $31 million,
including a net change in film costs and associated liabilities of $192
million, and cash interest payments, net of cash interest received, of $85
million. Other primary uses of cash during the period included additions to
property and equipment of $68 million. The primary source of cash for the
period was borrowings under the unsecured revolving credit facilities of $140
million.
Included in the net change in film costs were $563 million utilized by
the Company for original entertainment and sports programming (including $351
million for theatrical film productions, excluding promotional and advertising
costs).
In May 1995, the Company entered into an agreement with a financial
institution whereby the Company can sell on an ongoing basis up to $300 million
of an undivided percentage ownership interest in a designated pool of domestic
cable and advertising accounts receivable. The agreement was renewed in April
1996 for another one-year term. As of June 30, 1996, the Company had sold an
undivided interest in this designated pool of its domestic cable and
advertising accounts receivable that aggregated $300 million. The original
proceeds were used in 1995 to repay amounts outstanding under the Company's
unsecured revolving credit facilities. During 1996, the Company has recognized
costs of approximately $9 million in connection with this accounts receivable
securitization program. The ongoing costs of the program are anticipated to be
less than those the Company would have otherwise incurred under the bank credit
facilities. See Note 7 of Notes to Consolidated Condensed Financial Statements.
See the Consolidated Condensed Statements of Cash Flows for additional
details regarding sources and uses of cash and Note 5 and Note 7 of Notes to
Consolidated Condensed Financial Statements for additional information about
the Company's indebtedness and the accounts receivable securitization program.
CREDIT FACILITIES AND FINANCING ACTIVITIES
The Company had approximately $2.6 billion of outstanding indebtedness
at June 30, 1996, of which $1.6 billion was outstanding under unsecured
revolving credit facilities with banks.
On January 4, 1996, the Company called for redemption on February 5,
1996 all of the convertible subordinated debentures originally issued by a
wholly-owned subsidiary and subsequently assumed by the Company. All of the
debentures outstanding, which aggregated approximately $29 million, 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.
10
<PAGE> 11
CAPITAL RESOURCES AND COMMITMENTS
During the next 12 months, the Company anticipates making cash
expenditures of approximately $290 million for sports programming, primarily
rights fees, approximately $1.3 billion for original entertainment programming
(excluding promotional and advertising costs) and approximately $160 million
for licensed programming. Also, during the next 12 months, 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 and film suppliers and additional
borrowings.
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") 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 $0.125 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
11
<PAGE> 12
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. In connection with the FTC's
review of the Mergers and certain related transactions, the Company, Time
Warner and TCI have entered into an agreement in principle with respect to a
consent order which, if implemented as currently contemplated, will require
that certain amendments be made to the Merger Agreement and related agreements
entered into by the Company, Time Warner and Liberty Media Corporation ("LMC")
and its affiliates. Such agreements include (i) restrictions, under certain
circumstances, on the amount and type of securities of New Time Warner that LMC
and its affiliates can hold following the Mergers, (ii) limitations on the
extension of existing affiliation agreements pursuant to which
Tele-Communications, Inc. and its affiliates distribute programming produced by
the Company and (iii) restrictions on certain actions by Time Warner with
respect to the distribution and pricing of programming services.
As a result of the arrangements among R.E. Turner, the Company and
Time Warner 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, holders of a sufficient number of
shares of the Company's capital stock of each class have agreed 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 to assure approval by the
Company's shareholders, regardless of the vote of any other shareholders of the
Company. The LMC Agreement, however, provides that the 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. It is expected that the LMC
Agreement will be amended to provide for the changes required in connection
with the consent order described above. Also 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.
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. ("SportSouth"). The purchase price for the stock of TSPI (currently
estimated to be $65 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.
12
<PAGE> 13
RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1996 VS. THREE MONTHS ENDED
JUNE 30, 1995
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue
Entertainment
Networks $379,366 $310,108
Production & Distribution 273,500 262,060
Intrasegment revenue elimination (21,606) (13,065)
-------- --------
Total Entertainment 631,260 559,103
News 211,688 196,247
Other 72,424 52,293
Intersegment revenue elimination (15,354) (9,757)
-------- --------
$900,018 $797,886
======== ========
Operating profit (loss)
Entertainment
Networks $ 69,218 $ 65,335
Production & Distribution (41,196) (25,862)
Intrasegment elimination 648 5,212
-------- --------
Total Entertainment 28,670 44,685
News 66,361 69,985
Other (23,206) (25,083)
Equity in loss of
unconsolidated entities (1,423) (2,668)
Costs of accounts receivable
securitization program (5,049) (3,258)
Time Warner merger costs (5,762) -
-------- --------
$ 59,591 $ 83,661
======== ========
</TABLE>
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased $72 million, or 13%, from $559
million to $631 million. In the entertainment networks, advertising revenue
increased $44 million, or 20%, from $216 million to $260 million, primarily due
to a strong overall advertising market for TBS Superstation and TNT.
Subscription revenue for the entertainment networks increased $19 million, or
22%, from $87 million to $106 million, as a result of higher rates as well as
an increase in cable and home satellite viewers, primarily at TNT. In the
production and distribution companies, home video revenue increased $22
million, or 26%, from $86 million to $108 million due to the number of home
video releases in 1996 compared to 1995. Television syndication revenue
increased $15 million, from $57 million to $72 million, due to the continued
success of the off-network syndication of Seinfeld and an overall increase in
New Line Cinema Corporation ("New Line Cinema") and Castle Rock Entertainment
("Castle Rock") product available in the television syndication markets. The
revenue increases described above were offset by a decrease in theatrical film
revenue of $28 million, from $67 million to $39 million, due to the timing and
number of releases in the second quarter of 1996 in comparison to 1995.
13
<PAGE> 14
Operating profit for the Entertainment Segment decreased $16 million,
or 36%, from $45 million to $29 million. Operating profit for the
entertainment networks increased $7 million, or 9%, from $76 million to $83
million, due primarily to the revenue increases described above partially
offset by increased costs related to sports and entertainment programming.
Operating losses from the production and distribution companies increased $23
million. The increase was primarily due to disappointing results at Castle Rock
for domestic and international theatrical releases, which resulted in
write-offs of approximately $28 million.
NEWS SEGMENT
News Segment revenue rose $16 million, or 8%, from $196 million to
$212 million. Advertising revenue increased $8 million, or 8%, due to a $5
million, or 35%, increase in international advertising revenue at CNN
International as well as an increase in the amount charged per thousand homes at
CNN Headline News. Subscription revenue increased $6 million, or 8%, from $75
million to $81 million, due to an increase in both cable and home satellite
viewers at CNN and CNN International.
Operating profit for the News Segment decreased $4 million, or 5%,
from $70 million to $66 million as revenue increases were offset by increased
news gathering costs including costs associated with political coverage as well
as CNNfn start-up costs.
OTHER SEGMENT
Revenue for the Other Segment increased $20 million, or 38%, from $52
million to $72 million. Atlanta Braves revenue increased $15 million due
primarily to an increase in the number of games played in the second quarter of
1996 as compared to the strike-shortened 1995 season. Increased television
syndication revenue at World Championship Wrestling of $4 million accounts for
the remainder of the revenue increase. Overall, revenue increases outpaced
increased costs, resulting in a $2 million decrease in operating losses for the
quarter.
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/MISCELLANEOUS
The Company's share of operating losses from unconsolidated entities
decreased by $1 million due primarily to improved operations at n-tv, a 24-hour
German news network, and increased earnings from SportSouth.
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 original proceeds were used to repay
amounts outstanding under the Company's unsecured revolving credit facilities.
The Company recognized costs of approximately $5 million in the second quarter
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 its unsecured revolving credit facilities.
Consolidated interest expense decreased $8 million, from $47 million
to $39 million, due to an increase in interest income associated with long-term
receivables and lower interest rates related to the Company's revolving credit
facilities.
14
<PAGE> 15
As a result of the information discussed above, the Company reported
net income of $11 million in the second quarter of 1996 ($0.04 net income per
common share and common share equivalent). This compares to net income of $22
million in the second quarter of 1995 ($0.08 net income per common share and
common share equivalent).
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 VS. SIX MONTHS ENDED
JUNE 30, 1995
<TABLE>
<CAPTION>
UNAUDITED UNAUDITED
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1996 JUNE 30, 1995
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Revenue
Entertainment
Networks $ 673,346 $ 553,522
Production & Distribution 579,907 553,201
Intrasegment revenue elimination (70,882) (46,227)
---------- ----------
Total Entertainment 1,182,371 1,060,496
News 407,125 378,707
Other 108,615 83,962
Intersegment revenue elimination (22,892) (14,964)
---------- ----------
$1,675,219 $1,508,201
========== ==========
Operating profit (loss)
Entertainment
Networks $ 136,125 $ 108,762
Production & Distribution (89,583) (12,908)
Intrasegment elimination (22,403) (3,370)
---------- ----------
Total Entertainment 24,139 92,484
News 126,569 136,863
Other (46,779) (45,740)
Equity in loss of
unconsolidated entities (4,449) (7,737)
Costs of accounts receivable
securitization program (8,803) (3,258)
Time Warner merger costs (6,713) -
---------- ----------
$ 83,964 $ 172,612
========== ==========
</TABLE>
ENTERTAINMENT SEGMENT
Entertainment Segment revenue increased $122 million, or 11%, from
$1.06 billion to $1.18 billion. In the entertainment networks, advertising
revenue increased $78 million, or 22%, from $360 million to $438 million, due
to a strong overall advertising market for TNT and TBS Superstation.
Subscription revenue for the entertainment networks increased $38 million, or
23%, from $171 million to $209 million, as a result of higher rates as well as
an increase in both cable and home satellite viewers, primarily at TNT. In the
production and distribution companies, television syndication revenue increased
$27 million, or 21%, from $126 million to $153 million due to the continued
success of Seinfeld and an overall increase in New Line Cinema and Castle Rock
product available in the television syndication markets. Licensing and
merchandising revenue increased $6 million, or 21%, from $29 million to $35
million due to increased sales related
15
<PAGE> 16
to Turner Entertainment Co. Library product. The revenue increases described
above were offset by decreased theatrical revenue of $31 million, or 26%, from
$120 million to $89 million, due to the timing and number of releases in 1996
in comparison to 1995.
Operating profit for the Entertainment Segment decreased $68 million,
or 74%, from $92 million to $24 million. Operating profit for the
entertainment networks increased $36 million, or 28%, from $127 million to $163
million primarily due to the revenue increases described above partially offset
by increased costs related to sports and entertainment programming. Operating
losses from the production and distribution companies increased $104 million
from $35 million to $139 million. The increase was primarily due to
disappointing results from domestic and international theatrical releases at
Castle Rock, which resulted in net write-offs of approximately $88 million, a
lack of comparable theatrical and home video titles from the Company's other
units, as well as increased costs associated with certain of the Company's
syndicated programming.
NEWS SEGMENT
News Segment revenue increased $28 million, or 8%, from $379 million
to $407 million, due to an increase of $14 million, or 10%, from $146 million
to $160 million, in subscription revenue at CNN, CNN International and CNNfn.
Advertising revenue increased $9 million, or 5%, from $193 million to $202
million, primarily due to the continued expansion of CNN International.
Domestic advertising revenue remained relatively flat in comparison to the
prior year, as increased rates were offset by lower viewership when compared
with exceptionally high viewing levels associated with the O.J. Simpson trial.
Operating profit for the News Segment decreased $10 million, or 8%,
from $137 million to $127 million as revenue increases were offset by increased
newsgathering costs associated with political coverage as well as CNNfn
start-up costs of $3 million.
OTHER SEGMENT
Revenue for the Other Segment increased $25 million, or 29%, from $84
million to $109 million. Atlanta Braves revenue increased $16 million primarily
due to an increase in the number of games played in 1996 compared to the
strike-shortened 1995 season. Increased television syndication revenue at
World Championship Wrestling ("WCW") of $8 million accounts for the remainder
of the revenue increase. Overall, costs associated with the revenue increases
described above, as well as general corporate infrastructure spending to
support Company growth, outpaced increased revenue, resulting in a $1 million
increase in operating losses, from $46 million to $47 million.
EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/MISCELLANEOUS
The Company's share of operating losses from unconsolidated entities
decreased $3 million due to increased earnings from SportSouth and improved
operations at n-tv, a 24-hour German news network.
Consolidated depreciation and amortization increased approximately $9
million as a result of increased levels of property and equipment required to
support the Company's growth.
16
<PAGE> 17
Consolidated interest expense decreased $16 million, from $97 million
to $81 million, primarily due to lower interest rates and lower average
outstanding balances associated with the Company's revolving credit facilities
as well as increased interest income associated with long-term receivables.
As a result of the information discussed above, the Company reported
net income of $1 million for the six months ended June 30, 1996 ($0.01 net
income per common share and common share equivalent). This compares to net
income of $44 million for the six months ended June 30, 1995 ($0.15 net income
per common share and common share equivalent).
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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 (the "District Court") challenging
the provisions of the Cable Television Consumer Protection and Competition Act
of 1992 (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. 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 and will hear oral argument on October 7, 1996. 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. 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 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., 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
18
<PAGE> 19
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 (the "Defendants' Motion") 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. Additionally, the Court stayed discovery in
these consolidated actions until the Court rules on the Defendants' Motion.
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. On April 1, 1996, defendants in this action filed motions for judgment
on the pleadings on all claims asserted in the Third Amended Complaint. On June
17, 1996, the Court transformed the defendants' motion for judgment on the
pleadings into a motion for summary judgment with respect to two of the
plaintiff's claims, and denied the plaintiff's request for discovery on those
claims. The Court has not yet ruled on the defendants' motion.
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.
19
<PAGE> 20
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on June 7,
1996. At the annual meeting, the shareholders voted on the following matters:
(i) the election of fifteen directors; (ii) a proposal to ratify the selection
of Price Waterhouse LLP as the Company's independent accountants; and (iii) a
shareholder proposal concerning disclosure of executive compensation. The
results of the votes were as follows:
Proposal No. I - Election of Directors
Election of Eight Common Stock Directors:
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
--- -------------
<S> <C> <C> <C> <C>
R.E. Turner 159,826,251 votes 582,313 votes
--------------------- ---------------------
Henry L. Aaron 159,829,374 votes 583,460 votes
--------------------- ---------------------
W. Thomas Johnson 159,824,979 votes 583,855 votes
--------------------- ---------------------
Rubye M. Lucas 159,703,734 votes 615,100 votes
--------------------- ---------------------
Terence F. McGuirk 159,824,717 votes 584,117 votes
--------------------- ---------------------
Brian L. Roberts 159,799,013 votes 609,821 votes
--------------------- ---------------------
Scott M. Sassa 159,792,507 votes 616,328 votes
--------------------- ---------------------
Robert Shaye 159,824,497 votes 584,337 votes
--------------------- ---------------------
</TABLE>
Election of Seven Class C Directors:
<TABLE>
<CAPTION>
FOR VOTE WITHHELD
--- -------------
<S> <C> <C> <C> <C>
Peter R. Barton 14,767,614 votes 108,757 votes
--------------------- ---------------------
Joseph J. Collins 14,767,614 votes 108,757 votes
--------------------- ---------------------
Jeffrey L. Bewkes 14,767,614 votes 108,757 votes
--------------------- ---------------------
Gerald M. Levin 14,767,614 votes 108,757 votes
--------------------- ---------------------
John C. Malone 14,767,614 votes 108,757 votes
--------------------- ---------------------
Timothy P. Neher 14,767,614 votes 108,757 votes
--------------------- ---------------------
Fred A. Vierra 14,767,614 votes 108,757 votes
--------------------- ---------------------
</TABLE>
Proposal No. II - Ratification of selection of Price
Waterhouse LLP as the Company's independent accountants for
the fiscal year ending December 31, 1996:
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Preferred Total
Votes Votes Votes Votes
----------- ---------- ------------- -----
<S> <C> <C> <C> <C>
FOR: 134,646,570 25,708,959 14,876,371 175,231,900
----------------- ----------------- ----------------- -----------------
AGAINST: 9,056 2,263 0 11,319
----------------- ----------------- ----------------- -----------------
ABSTAIN: 9,762 2,105 0 11,867
----------------- ----------------- ----------------- -----------------
</TABLE>
20
<PAGE> 21
Proposal No. III - Shareholder proposal concerning
disclosure of executive compensation:
<TABLE>
<CAPTION>
Class A Class B Class C
Common Common Preferred Total
Votes Votes Votes Votes
----------- ---------- ------------- -----
<S> <C> <C> <C> <C>
FOR: 1,978,006 775,394 0 2,753,400
----------------- ----------------- ----------------- -----------------
AGAINST: 127,004,794 23,573,940 14,767,614 165,346,348
----------------- ----------------- ----------------- -----------------
ABSTAIN: 150,518 313,604 108,757 572,879
----------------- ----------------- ----------------- ------------------
</TABLE>
21
<PAGE> 22
ITEM 5. OTHER INFORMATION
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 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 rule, 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 advance television ("ATV") spectrum, whether
restrictions should be placed on the use of ATV 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. 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
22
<PAGE> 23
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.
23
<PAGE> 24
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 mark-up of 20 cents per
channel over actual programming costs, but may not make adjustments to monthly
rates for these new services totaling more than $1.20, plus an additional 30
cents solely for programming license fees, per subscriber over the first two
years of the three-year period. Cable operators may charge an additional 20
cents in the third year only for channels added in that year. Cable operators
electing to use the 20 cents per channel adjustment may not take a 7.5% mark-up
on programming cost increases, which is permitted under the FCC's current rate
regulations. The FCC requested further comment on whether cable operators
should continue to receive the 7.5% mark-up on increases in license fees on
existing programming services.
Additionally, the FCC will permit cable operators to offer NPTs at
rates which they elect so long as, among other conditions, other service tiers
that are subject to rate regulation are priced in conformity with applicable
FCC
24
<PAGE> 25
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. The Company cannot
predict the ultimate outcome of the litigation. 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 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 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.
LEASED ACCESS
The 1984 Cable Act established commercial leased access to assure
access to the channel capacity of cable systems by parties unaffiliated with
the cable operators. Channel set-aside requirements were established in
proportion to a system's total activated channel capacity. A cable operator was
permitted to use any unused leased access channel capacity until such time as a
written agreement for a leased channel use was obtained. The 1992 Cable Act
authorized the Commission to determine the maximum reasonable rates that a
cable operator may establish for leased access use.
On March 29, 1996, the Commission issued an Order and Further Notice
of Proposed Rulemaking on leased access. The Commission is considering changes
in its maximum rate formula and regulatory scheme for leased access. The
Company at this time cannot predict the overall effect, if any, that any
regulatory revisions may have on the Company's operations.
25
<PAGE> 26
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 Commissions, 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 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
26
<PAGE> 27
exclusive distribution rights to a person with respect to satellite cable
programming or that was entered into on or before June 1, 1990. While the
Company cannot predict the regulations' full effect on its operations, 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 litigation.
REGULATION OF CARRIAGE AGREEMENTS
The 1992 Act contains a provision that requires the FCC to establish
regulations governing program carriage agreements and related practices between
cable operators and video programming vendors, including provisions to prevent
the cable operator from requiring a financial interest in a program service as
a condition of carriage and provisions designed to prohibit a cable operator
from coercing a video programming vendor to provide exclusive rights as a
condition of carriage. On October 22, 1993, the Commission issued regulations
implementing this provision. The Company cannot at this time predict the effect
of this provision on its operations.
The constitutionality of this provision has been challenged in
litigation filed in the United States District Court for the District of
Columbia. On September 27, 1993, the district court upheld the
constitutionality of this provision. An appeal of that decision is pending in
the United States Court of Appeals for the District of Columbia Circuit. The
Company cannot predict the outcome of the litigation.
OWNERSHIP LIMITATIONS
Section 11 of the 1992 Act directed the Commission to prescribe rules
and regulations establishing limits on the number of cable subscribers a person
is authorized to reach through cable systems owned by such person and the
number of channels that can be occupied by video programmers in which a cable
operator has an attributable interest. The Commission must also consider the
necessity of imposing limitations on the degree to which multichannel video
programming distributors may engage in the creation or production of video
programming.
On December 28, 1992, the FCC issued a Notice of Proposed Rulemaking
and Notice of Inquiry with respect to these provisions. On October 22, 1993,
the FCC adopted a Second Report and Order that established a 40% limit on the
number of channels that may be occupied by programming services in which the
particular cable operator has an attributable interest. The Company is subject
to this provision. The FCC also established a national limit of 30% on the
number of homes passed that any one person can reach through cable systems
owned by such person, but stayed implementation of that provision pending
judicial review of its constitutionality. On April 5, 1995, the FCC denied the
petitions for reconsideration. The Company cannot at this time predict the
effect of this provision or these proposals on its operations.
27
<PAGE> 28
The constitutionality of these provisions has been challenged in
litigation filed in the United States District Court for the District of
Columbia. On September 27, 1993, the district court found the national limit on
homes passed unconstitutional, but upheld the constitutionality of the channel
capacity limits. An appeal of that decision is currently pending in the United
States Court of Appeals for the District of Columbia Circuit. Appeals of the
Commission's implementing regulations have also been taken to the United States
Court of Appeals for the District of Columbia Circuit. The Company cannot
predict the ultimate outcome of the litigation.
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, if any, may have on the
Company's operations.
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. On March 4, 1996, the FCC issued
implementing regulations with respect to this provision of the 1996 Act. The
Company at this time cannot predict the overall effect, if any, that the entry
of telephone companies into the delivery of video programming may have on the
Company's operations.
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
28
<PAGE> 29
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.
29
<PAGE> 30
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.6.7 Form of Amendment No. 5, dated as of April 25, 1996, among the
Company, the banks listed therein and The Chase Manhattan Bank
(National Association), as agent, to the Credit Agreement dated as of
July 1, 1993.
4.7.2 Form of Amendment No. 2, dated as of April 26, 1996, among the
Company, the banks listed therein and The Chase Manhattan Bank
(National Association), as agent, to the Credit Agreement dated as of
September 7, 1994.
11 Computation of Earnings per Common and Common Equivalent Share.
27 Financial Data Schedule.
(b) Reports on Form 8-K
On June 26, 1996, the Company filed a Current Report on Form 8-K which
described the previously reported transactions contemplated by the Amended and
Restated Agreement and Plan of Merger, dated as of September 22, 1995, among
the Company, Time Warner, TW Inc., Time Warner Acquisition Corp. and TW
Acquisition Corp. (the "Merger Agreement") and provided certain pro forma
financial statements with respect to the mergers contemplated by the Merger
Agreement.
30
<PAGE> 31
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TURNER BROADCASTING SYSTEM, INC.
By: /s/ William S. Ghegan
-------------------------------
William S. Ghegan
Vice President, Controller and
Chief Accounting Officer
Date: August 7, 1996
31
<PAGE> 1
EXHIBIT 4.6.7
Execution Counterpart
AMENDMENT NO. 5
AMENDMENT NO. 5 dated as of April 25, 1996 between TURNER
BROADCASTING SYSTEM, INC., a Georgia corporation (the "Company"), the Banks (as
such term is defined below) party hereto and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION) ("Chase"), as agent (the "Agent").
The Company, certain lenders (the "Banks") and the Agent are party
to a Credit Agreement dated as of July 1, 1993 (as amended, supplemented and
otherwise modified and in effect to but excluding the date hereof, the "Credit
Agreement"). The Company has requested that the Banks agree, and the Banks
party hereto are willing, to amend certain provisions of the Credit Agreement,
all on the terms and conditions of this Amendment. Accordingly, in
consideration of the premises and the mutual agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Terms used but not defined herein
shall have the respective meanings ascribed to such terms in the Credit
Agreement.
Section 2. Amendments. Subject to the satisfaction of the
conditions to effectiveness specified in Section 4 hereof, but with effect on
and after the date hereof, the Credit Agreement shall be amended as follows:
A. Certain New Defined Terms. Section 1.01 of the Credit
Agreement shall be amended by adding the following new definitions and inserting
the same in the appropriate alphabetical locations:
"Atlanta Hawks' shall mean Atlanta Hawks, Ltd., a Georgia
limited partnership."
"'Acquisition Date' shall mean the date that the Company
becomes a Wholly Owned Subsidiary of either Time Warner or a Person of which
Time Warner is a wholly owned Subsidiary."
"'Time Warner" shall mean Time Warner Inc., a Delaware
corporation.
B. Definition of Cash Flow. Clause (i) of the first sentence
of the definition of "Cash Flow" in Section 1.01 of the Credit Agreement shall
be amended to read as follows:
Amendment No. 5
<PAGE> 2
- 2 -
"(i) Atlanta Hawks shall be deemed to be a Consolidated Subsidiary
during such period unless, on the last day of such period, there shall
exist a Lien on any of the revenues of Atlanta Hawks and"
C. Definition of Subsidiary. The definition of "Subsidiary"
in Section 1.01 of the Credit Agreement shall be amended by adding a new
sentence at the end thereof reading as follows:
"Notwithstanding anything to the contrary contained herein (but subject
to clause (i) of the first sentence of the definition of "Cash Flow" in
Section 1.01 hereof), Atlanta Hawks shall not be deemed to be a
Subsidiary or a Wholly Owned Subsidiary of the Company."
D. Funded Debt Ratio. Section 8.13 of the Credit Agreement
shall be amended to read as follows:
"8.13 Funded Debt Ratio. The Company shall not permit the
Funded Debt Ratio to exceed the following respective ratios at any time
during the following respective periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From and including
the first Delivery Date
after March 31, 1995
through but excluding
the first Delivery Date after
September 30, 1996 6.00 to 1.00
From and including
the first Delivery Date
after September 30, 1996
through but excluding
the first Delivery Date after
December 31, 1996 6.50 to 1.00
From and including
the first Delivery Date
after December 31, 1996
through but excluding
the first Delivery Date after
March 31, 1997 6.00 to 1.00
</TABLE>
Amendment No. 5
<PAGE> 3
- 3 -
<TABLE>
<S> <C>
From and including
the first Delivery Date
after March 31, 1997
through but excluding
the first Delivery Date after
September 30, 1997 5.50 to 1.00
From and including
the first Delivery Date
after September 30, 1997
through but excluding
the first Delivery Date after
March 31, 1998 5.00 to 1.00
From and including
the first Delivery Date
after March 31, 1998
and at all times thereafter 4.50 to 1.00"
</TABLE>
E. Events of Default. Section 9(e) of the Credit Agreement
shall be amended to read as follows:
"(e) Before the Acquisition Date, there shall occur any
amendment in the provisions requiring supermajority vote pursuant to
Article 12, Section 3 of the by-laws of the Company as amended on and
through July 21, 1988 or any amendment in the provisions which are
subject to special class vote pursuant to Article 5, Section C.4 of the
articles of incorporation of the Company as amended on and through
August 25, 1987; or"
Section 3. Representations and Warranties. The Company represents and
warrants to the Banks and the Agent that:
(a) this Amendment has been duly and validly executed and
delivered by the Company and constitutes the Company's legal, valid and
binding obligation, enforceable against the Company in accordance with
its terms; and
(b) after giving effect to this Amendment, (i) no Default shall
have occurred and be continuing and (ii) the representations and
warranties made by the Company in Section 7 of the Credit Agreement are
true and correct on and as of the date hereof with the same force and
effect as if made on and as of such date (or, if any such
representation or warranty is expressly stated to have been made as of
a specific date, as of such specific date).
Section 4. Conditions To Effectiveness. The amendments to the
Credit Agreement set forth in Section 2 hereof shall become effective, as of the
date hereof, upon the receipt
Amendment No. 5
<PAGE> 4
- 4 -
by the Agent of this Amendment, duly executed and delivered by the Company, the
Majority Banks and the Agent.
Section 5. Documents Otherwise Unchanged. Except as herein
provided, the Credit Agreement shall remain unchanged and in full force and
effect, and each reference to the Credit Agreement and words of similar import
in the Credit Agreement, as amended hereby, and the Notes shall be a reference
to the Credit Agreement as amended hereby and as the same may be further
amended, supplemented and otherwise modified and in effect from time to time.
Section 6. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be identical and all of which, when
taken together, shall constitute one and the same instrument, and any of the
parties hereto may execute this Amendment by signing any such counterpart.
Section 7. Binding Effect. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 8. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year first above written.
TURNER BROADCASTING SYSTEM, INC.
By
-----------------------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By
------------------------------------------
Title:
BANK OF AMERICA ILLINOIS
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 5
- 5 -
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By
------------------------------------------
Title:
THE FIRST NATIONAL BANK OF BOSTON
By
------------------------------------------
Title:
BANK OF MONTREAL
By
------------------------------------------
Title:
THE BANK OF NEW YORK
By
------------------------------------------
Title:
THE BANK OF NOVA SCOTIA
By
------------------------------------------
Title:
BANK OF SCOTLAND
By
------------------------------------------
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 6
- 6 -
By
------------------------------------------
Title:
BARCLAYS BANK PLC
By
------------------------------------------
Title:
CIBC INC.
By
------------------------------------------
Title:
CITIBANK, N.A.
By
------------------------------------------
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By
------------------------------------------
Title:
CREDIT SUISSE
By
------------------------------------------
Title:
By
------------------------------------------
Title:
DAI-ICHI KANGYO BANK, LTD.
By
------------------------------------------
Amendment No. 5
<PAGE> 7
- 7 -
Title:
FIRST HAWAIIAN BANK
By
-----------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------------------
Title:
FIRST UNION NATIONAL BANK OF
GEORGIA
By
------------------------------------------
Title:
FLEET BANK
BY
------------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By
------------------------------------------
Title:
LTCB TRUST COMPANY
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 8
- 8 -
MELLON BANK, N.A.
By
------------------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By
------------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------------
Title:
THE NIPPON CREDIT BANK, LTD.
By
------------------------------------------
Title:
ROYAL BANK OF CANADA
By
-----------------------------------------
Title:
THE SAKURA BANK, LIMITED, ATLANTA
AGENCY
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 9
- 9 -
SOCIETE GENERALE
By
------------------------------------------
Title:
THE TOKAI BANK, LIMITED
By
------------------------------------------
Title:
THE TORONTO-DOMINION BANK
By
------------------------------------------
Title:
UNION BANK OF CALIFORNIA
By
------------------------------------------
Title:
THE YASUDA TRUST AND BANKING CO.,
LTD.
By
------------------------------------------
Title:
BANKERS TRUST COMPANY
By
------------------------------------------
Title:
BANK OF HAWAII
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 10
- 10 -
BANQUE PARIBAS
By
------------------------------------------
Title:
CORESTATES BANK, N.A.
By
------------------------------------------
Title:
CRESTAR BANK
By
------------------------------------------
Title:
THE FUJI BANK, LTD.
By
------------------------------------------
Title:
MIDLAND BANK, PLC
By
------------------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By
------------------------------------------
Title:
SUNTRUST BANK, ATLANTA
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 11
- 11 -
SWISS BANK CORPORATION,
NEW YORK BRANCH
By
------------------------------------------
Title:
By
------------------------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By
------------------------------------------
Title:
Amendment No. 5
<PAGE> 1
EXHIBIT 4.7.2
Execution Counterpart
AMENDMENT NO. 2
AMENDMENT NO. 2 dated as of April 26, 1996 between TURNER
BROADCASTING SYSTEM, INC., a Georgia corporation (the "Company"), the Banks (as
such term is defined below) party hereto and THE CHASE MANHATTAN BANK (NATIONAL
ASSOCIATION) ("Chase"), as agent (the "Agent").
The Company, certain lenders (the "Banks") and the Agent are party
to a Credit Agreement dated as of September 7, 1994 (as amended, supplemented
and otherwise modified and in effect to but excluding the date hereof, the
"Credit Agreement"). The Company has requested that the Banks agree, and the
Banks party hereto are willing, to amend certain provisions of the Credit
Agreement, all on the terms and conditions of this Amendment. Accordingly, in
consideration of the premises and the mutual agreements contained herein, and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:
Section 1. Definitions. Terms used but not defined herein
shall have the respective meanings ascribed to such terms in the Credit
Agreement.
Section 2. Amendments. Subject to the satisfaction of the
conditions to effectiveness specified in Section 4 hereof, but with effect on
and after the date hereof, the Credit Agreement shall be amended as follows:
A. Certain New Defined Terms. Section 1.01 of the Credit
Agreement shall be amended by adding the following new definitions and inserting
the same in the appropriate alphabetical locations:
"Atlanta Hawks' shall mean Atlanta Hawks, Ltd., a Georgia
limited partnership."
"'Acquisition Date', shall mean the date that the Company
becomes a Wholly Owned Subsidiary of either Time Warner or a Person of which
Time Warner is a Wholly Owned Subsidiary."
"'Time Warner" shall mean Time Warner Inc., a Delaware
corporation."
B. Definition of Cash Flow. Clause (i) of the first sentence
of the definition of "Cash Flow" in Section 1.01 of the Credit Agreement shall
be amended to read as follows:
Amendment No. 2
<PAGE> 2
- 2 -
"(i) Atlanta Hawks shall be deemed to be a Consolidated Subsidiary
during such period unless, on the last day of such period, there shall
exist a Lien on any of the revenues of Atlanta Hawks and"
C. Definition of Subsidiary. The definition of "Subsidiary"
in Section 1.01 of the Credit Agreement shall be amended by adding a new
sentence at the end thereof reading as follows:
"Notwithstanding anything to the contrary contained herein (but
subject to clause (i) of the first sentence of the definition of "Cash
Flow" in Section 1.01 hereof), Atlanta Hawks shall not be deemed to be
a Subsidiary or a Wholly Owned Subsidiary of the Company."
D. Funded Debt Ratio. Section 8.13 of the Credit Agreement
shall be amended to read as follows:
"8.13 Funded Debt Ratio. The Company shall not permit
the Funded Debt Ratio to exceed the following respective ratios at any
time during the following respective periods:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
From and including
the first Delivery Date
after March 31, 1995
through but excluding
the first Delivery Date after
September 30, 1996 6.00 to 1.00
From and including
the first Delivery Date
after September 30, 1996
through but excluding
the first Delivery Date after
December 31, 1996 6.50 to 1.00
From and including
the first Delivery Date
after December 31, 1996
through but excluding
the first Delivery Date after
March 31, 1997 6.00 to 1.00
</TABLE>
Amendment No. 2
<PAGE> 3
- 3 -
<TABLE>
<S> <C>
From and including
the first Delivery Date
after March 31, 1997
through but excluding
the first Delivery Date after
September 30, 1997 5.50 to 1.00
From and including
the first Delivery Date
after September 30, 1997
through but excluding
the first Delivery Date after
March 31, 1998 5.00 to 1.00
From and including
the first Delivery Date
after March 31, 1998
and at all times thereafter 4.50 to 1.00"
</TABLE>
E. Events of Default. Section 9(e) of the Credit Agreement shall
be amended to read as follows:
"(e) Before the Acquisition Date, there shall occur any
amendment in the provisions requiring supermajority vote pursuant to
Article 12, Section 3 of the by-laws of the Company as amended on and
through July 21, 1988 or any amendment in the provisions which are
subject to special class vote pursuant to Article 5, Section C.4 of the
articles of incorporation of the Company as amended on and through August
25, 1987; or"
Section 3. Representations and Warranties. The Company
represents and warrants to the Banks and the Agent that:
(a) this Amendment has been duly and validly executed and
delivered by the Company and constitutes the Company's legal, valid and
binding obligation, enforceable against the Company in accordance with its
terms; and
(b) after giving effect to this Amendment, (i) no Default
shall have occurred and be continuing and (ii) the representations and
warranties made by the Company in Section 7 of the Credit Agreement are
true and correct on and as of the date hereof with the same force and
effect as if made on and as of such date (or, if any such representation
or warranty is expressly stated to have been made as of a specific date,
as of such specific date).
Section 4. Conditions To Effectiveness. The amendments to the
Credit Agreement set forth in Section 2 hereof shall become effective, as of the
date hereof, upon the receipt
Amendment No. 2
<PAGE> 4
- 4 -
by the Agent of this Amendment, duly executed and delivered by the Company, the
Majority Banks and the Agent.
Section 5. Documents Otherwise Unchanged. Except as herein
provided, the Credit Agreement shall remain unchanged and in full force and
effect, and each reference to the Credit Agreement and words of similar import
in the Credit Agreement, as amended hereby, and the Notes shall be a reference
to the Credit Agreement as amended hereby and as the same may be further
amended, supplemented and otherwise modified and in effect from time to time.
Section 6. Counterparts. This Amendment may be executed in any
number of counterparts, each of which shall be identical and all of which, when
taken together, shall constitute one and the same instrument, and any of the
parties hereto may execute this Amendment by signing any such counterpart.
Section 7. Binding Effect. This Amendment shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
Section 8. Governing Law. This Amendment shall be governed by,
and construed in accordance with, the law of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year first above written.
TURNER BROADCASTING SYSTEM, INC.
By
------------------------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION)
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 5
- 5 -
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH
By
------------------------------------------
Title:
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD.
By
------------------------------------------
Title:
THE TORONTO-DOMINION BANK
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 6
- 6 -
BANK OF AMERICA ILLINOIS
By
------------------------------------------
Title:
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
By
------------------------------------------
Title:
BANK OF MONTREAL
By
------------------------------------------
Title:
THE BANK OF NEW YORK
By
------------------------------------------
Title
THE BANK OF NOVA SCOTIA
By
------------------------------------------
Title:
CREDIT SUISSE
By
------------------------------------------
Title:
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 7
- 7 -
THE FIRST NATIONAL BANK OF BOSTON
By
------------------------------------------
Title:
THE FIRST NATIONAL BANK OF CHICAGO
By
------------------------------------------
Title:
FIRST UNION NATIONAL BANK OF
GEORGIA
By
------------------------------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, ATLANTA AGENCY
By
------------------------------------------
Title:
THE MITSUBISHI TRUST AND BANKING
CORPORATION
By
------------------------------------------
Title:
NATIONSBANK OF TEXAS, N.A.
By
------------------------------------------
Title:
ROYAL BANK OF CANADA
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 8
- 8 -
SOCIETE GENERAL
By
------------------------------------------
Title:
UNION BANK OF CALIFORNIA
By
------------------------------------------
Title:
BANK OF HAWAII
By
------------------------------------------
Title:
CIBC INC.
By
------------------------------------------
Title:
THE FUJI BANK, LTD.
By
------------------------------------------
Title:
MIDLAND BANK, PLC
By
------------------------------------------
Title:
PNC BANK, NATIONAL ASSOCIATION
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 9
- 9 -
CRESTAR BANK
By
------------------------------------------
Title:
THE NIPPON CREDIT BANK, LTD.
By
------------------------------------------
Title:
SWISS BANK CORPORATION.,
NEW YORK BRANCH
By
------------------------------------------
Title:
By
------------------------------------------
Title:
THE TOKAI BANK, LIMITED
By
------------------------------------------
Title:
THE YASUDA TRUST AND BANKING CO., LTD.
By
-------------------------------------------
Title:
THE CHASE MANHATTAN BANK
(NATIONAL ASSOCIATION),
as Agent
By
------------------------------------------
Title:
Amendment No. 2
<PAGE> 1
EXHIBIT 11
TURNER BROADCASTING SYSTEM, INC.
Computation of Primary Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net income applicable to common stock $ 11,271 $ 1,463
======== ========
Weighted average number of shares outstanding during the period 208,293 207,635
Add:Common equivalent shares issuable assuming conversion of
Class C Convertible Preferred Stock 74,382 74,382
Shares issuable upon exercise of stock options 18,870 18,870
Subtract: Shares which would have been purchased with proceeds
from exercise of such stock options 13,595 13,544
-------- --------
Weighted average number of common stock, common stock
equivalents and converted shares outstanding 287,950 287,343
======== ========
Weighted average number of Class A common shares and common
stock equivalents 68,330 68,330
======== ========
Weighted average number of Class B common shares and common
stock equivalents 219,620 219,013
======== ========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.04 $ 0.01
======== ========
</TABLE>
<PAGE> 2
TURNER BROADCASTING SYSTEM, INC.
Computation of Fully-Diluted Earnings Per Share
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 1996 June 30, 1996
------------------ ----------------
<S> <C> <C>
Net income applicable to common stock $ 11,271 $ 1,463
Add: Interest expense on zero coupon subordinated convertible
notes due 2007 4,854 9,624
Interest expense on 6.5% convertible notes 0 344
Subtract: Additional income taxes (2,281) (4,685)
-------- --------
Adjusted net income applicable to common stock $ 13,844 $ 6,746
======== ========
Primary weighted average number of shares outstanding 287,950 287,343
Add: Common shares issuable assuming conversion of
convertible notes due 2007 7,440 7,440
Change in shares due to options assumed converted using the
end of period market value 140 89
Common shares issuable assuming conversion of 6.5%
convertible notes for applicable period 0 547
-------- --------
Weighted average number of common stock, common stock
equivalents and convertible shares, assuming full dilution 295,530 295,419
======== ========
Weighted average number of Class A common shares and common
equivalents and convertible shares, assuming full dilution 68,330 68,330
======== ========
Weighted average number of Class B common shares and common
equivalents and convertible shares, assuming full dilution 227,200 227,089
======== ========
Earnings per share and common stock equivalent of Class A
and Class B Common Stock $ 0.05 $ 0.02
======== ========
</TABLE>
This calculation is submitted in accordance with the rules and regulations of
the Securities and Exchange Commission. Under generally accepted accounting
principles this presentation would not be made because it is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 118,734
<SECURITIES> 0
<RECEIVABLES> 520,177
<ALLOWANCES> (41,711)
<INVENTORY> 0
<CURRENT-ASSETS> 1,410,617
<PP&E> 680,676
<DEPRECIATION> (312,188)
<TOTAL-ASSETS> 4,488,108
<CURRENT-LIABILITIES> 821,970
<BONDS> 2,601,671
0
260,438
<COMMON> 13,026
<OTHER-SE> 197,489
<TOTAL-LIABILITY-AND-EQUITY> 4,488,108
<SALES> 1,675,219
<TOTAL-REVENUES> 1,675,219
<CGS> 1,051,631
<TOTAL-COSTS> 1,591,255
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 6,972
<INTEREST-EXPENSE> 81,183
<INCOME-PRETAX> 2,781
<INCOME-TAX> 1,318
<INCOME-CONTINUING> 1,463
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,463
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.00
</TABLE>
