SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT of 1934 for the quarterly
period ended June 30, 1997, 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 number 1-12259
TIME WARNER INC.
(Exact name of registrant as specified in its charter)
Delaware 13-3527249
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
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.
Common Stock - $.01 par value 515,726,899
Series LMCN-V Common Stock - $.01 par value 57,061,942
Description of Class Shares Outstanding
as of July 31, 1997
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TIME WARNER INC. AND
TIME WARNER ENTERTAINMENT COMPANY, L.P.
INDEX TO FORM 10-Q
Page
Time
Warner TWE
PART I. FINANCIAL INFORMATION
Management's discussion and analysis of results of
operations and financial condition 1 32
Consolidated balance sheets at June 30, 1997 and
December 31, 1996 16 38
Consolidated statements of operations for the three
and six months ended June 30, 1997 and 1996 17 39
Consolidated statements of cash flows for the six
months ended June 30, 1997 and 1996 18 40
Notes to consolidated financial statements 19 41
Supplementary information 30
PART II. OTHER INFORMATION 46
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Part I. Financial Information
TIME WARNER INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On October 10, 1996, Time Warner Inc. ("Time Warner" or
the "Company"), acquired the remaining 80% interest in
Turner Broadcasting System, Inc. ("TBS") that it did not
already own (the "TBS Transaction"). As a result of this
transaction, a new parent company with the name "Time Warner
Inc." replaced the old parent company of the same name ("Old
Time Warner", now known as Time Warner Companies, Inc.), and
Old Time Warner and TBS became separate, wholly owned
subsidiaries of the new parent company ("New Time Warner").
References herein to "Time Warner" or the "Company" refer to
Old Time Warner prior to October 10, 1996 and New Time
Warner thereafter.
Time Warner classifies its business interests into four
fundamental areas: Entertainment, consisting principally of
interests in recorded music and music publishing, filmed
entertainment, television production, television
broadcasting and theme parks; Cable Networks, consisting
principally of interests in cable television programming and
sports franchises; Publishing, consisting principally of
interests in magazine publishing, book publishing and direct
marketing; and Cable, consisting principally of interests in
cable television systems. A majority of Time Warner's
interests in filmed entertainment, television production,
television broadcasting and cable television systems, and a
portion of its interests in cable television programming are
held through Time Warner Entertainment Company, L.P.
("TWE"). Time Warner owns general and limited partnership
interests in TWE consisting of 74.49% of the pro rata
priority capital ("Series A Capital") and residual equity
capital ("Residual Capital"), and 100% of the senior
priority capital ("Senior Capital") and junior priority
capital ("Series B Capital"). The remaining 25.51% limited
partnership interests in the Series A Capital and Residual
Capital of TWE are held by a subsidiary of U S WEST, Inc.
("U S WEST"). Time Warner does not consolidate TWE and
certain related companies (the "Entertainment Group") for
financial reporting purposes because of certain limited
partnership approval rights related to TWE's interest in
certain cable television systems. Capitalized terms are as
defined and described in the accompanying consolidated
financial statements, or elsewhere herein.
Cable Strategy
Currently, Time Warner is no longer actively pursuing a
restructuring of TWE with U S WEST. However, Time Warner is
continuing to explore alternatives to reduce selectively its
economic interest in the cable television business and
related ancillary businesses in order to reduce existing
debt and its share of future funding requirements related to
such operations. These alternatives include sales or
exchanges of non-strategic, unclustered cable television
systems and tax-efficient transfers of cable television
systems and related ancillary businesses to joint ventures
or other enterprises that would be responsible for financing
the operating and capital needs of such businesses. These
alternatives may be subject to third party, franchise and
regulatory approvals, including, in certain instances,
approval by U S WEST and/or the Advance/Newhouse Partnership
("Advance/Newhouse"). There can be no assurance that any of
these efforts will succeed.
Consistent with this strategy of reducing existing debt
and its share of future funding requirements related to the
cable television business, TWE and Advance/Newhouse entered
into agreements in June 1997 to transfer the direct
broadcast satellite operations conducted by TWE and the
TWE-Advance/Newhouse Partnership (the "DBS Operations") and
the 31% partnership interest in Primestar Partners, L.P.
held by the TWE-Advance/Newhouse Partnership ("Primestar"
and collectively, the "Primestar Assets") to a new, publicly
traded holding company ("Newco") that will be the parent
entity of TCI Satellite Entertainment, Inc. ("TSAT"). Newco
will also own the DBS Operations and Primestar partnership
interests currently owned by TSAT and other existing partners of
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Primestar. In exchange for contributing its interests in the
Primestar Assets, TWE will receive an approximate 24% equity
interest in Newco and realize approximately $200 million of
debt reduction, as well as eliminating its share of future
funding requirements for these operations that will be
separately financed by Newco. In partial consideration for
contributing its indirect interest in certain of the
Primestar Assets, Advance/Newhouse will receive an
approximate 6% equity interest in Newco.
In a related transaction, Primestar also entered into
an agreement in June 1997 with The News Corporation Limited,
MCI Telecommunications Corporation and American Sky
Broadcasting LLC ("ASkyB"), pursuant to which Primestar (or,
under certain circumstances, Newco) will acquire certain
assets relating to the high-power, direct broadcast
satellite business of ASkyB. In exchange for such assets,
ASkyB will receive non-voting securities of Newco that will
be convertible into non-voting common stock of Newco and,
accordingly, reduce TWE's equity interest in Newco to
approximately 16% on a fully diluted basis.
The Primestar transactions are not conditioned on each
other and may close independently. They are expected to
close in 1998, subject to customary closing conditions,
including all necessary governmental and regulatory
approvals, including the approval of the Federal
Communications Commission (the "FCC"). There can be no
assurance that such approvals will be obtained.
Use of EBITDA
The following comparative discussion of the results of
operations and financial condition of Time Warner and the
Entertainment Group includes, among other factors, an
analysis of changes in the operating income of the business
segments before depreciation and amortization ("EBITDA") in
order to eliminate the effect on the operating performance
of the music, filmed entertainment, cable network and cable
businesses of significant amounts of amortization of
intangible assets recognized in the $14 billion acquisition
of WCI in 1989, the $1.3 billion acquisition of the ATC
minority interest in 1992, the $2.3 billion of cable
acquisitions in 1995 and 1996, the $6.2 billion acquisition
of TBS in 1996 and other business combinations accounted for
by the purchase method. Financial analysts generally
consider EBITDA to be an important measure of comparative
operating performance for the businesses of Time Warner and
the Entertainment Group, and, when used in comparison to
debt levels or the coverage of interest expense, as a
measure of liquidity. However, EBITDA should be considered
in addition to, not as a substitute for, operating income,
net income, cash flow and other measures of financial
performance and liquidity reported in accordance with
generally accepted accounting principles.
RESULTS OF OPERATIONS
As a result of the TBS Transaction, Time Warner has two
new business segments which parallel its previously existing
interests in filmed entertainment and cable television
programming held through TWE. Time Warner's Cable Networks
segment principally consists of TBS's cable television
networks and sports operations. These operations include
entertainment networks such as TNT, TBS Superstation,
Cartoon Network and Turner Classic Movies; news networks
such as CNN, CNN International and CNN Headline News; and
sports franchises consisting of the Atlanta Braves and the
Atlanta Hawks. Time Warner's Filmed Entertainment segment
principally consists of TBS's film and television production
and distribution operations, including New Line Cinema, Castle
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Rock Entertainment, Hanna-Barbera Productions, Inc. and the
former film and television libraries of Metro-Goldwyn-Mayer,
Inc. and RKO Pictures, Inc.
In order to enhance comparability, the following
discussion of results of operations for Time Warner is
supplemented, where appropriate, by pro forma financial
information that gives effect to the TBS Transaction and
certain 1996 debt refinancings by Time Warner, including the
use of approximately $1.55 billion of net proceeds from the
issuance of Series M exchangeable preferred stock to reduce
debt ("Series M Preferred Stock" and collectively, the "Time
Warner Transactions"), as if such transactions had occurred
at the beginning of 1996. The pro forma results are
presented for informational purposes only and are not
necessarily indicative of the operating results that would
have occurred had the transactions actually occurred at the
beginning of 1996, nor are they necessarily indicative of
future operating results.
EBITDA and operating income for Time Warner and the
Entertainment Group for the three and six months ended June
30, 1997 and 1996 are as follows:
Three Months Ended June 30,
EBITDA Operating Income
Pro Pro
Historical Forma Historical Historical Forma Historical
1997 1996 1996 1997 1996 1996
(millions)
Time Warner:
Publishing $174 $156 $156 $149 $125 $125
Music 125 165 165 32 70 70
Cable Networks-TBS 186 132 - 115 69 -
Filmed Entertainment
-TBS 31 (21) - 10 (45) -
Cable 135 118 118 35 20 20
Intersegment
elimination 4 2 - 4 2 -
Total $655 $552 $439 $345 $241 $215
Entertainment Group:
Filmed Entertainment
-Warner Bros. $155 $141 $141 $ 80 $ 79 $ 79
Broadcasting
-The WB Network (18) (12) (12) (19) (12) (12)
Cable Networks-HBO 103 87 87 98 83 83
Cable 419 376 376 168 147 147
Total $659 $592 $592 $327 $297 $297
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Six Months Ended June 30,
EBITDA Operating Income
Pro Pro
Historical Forma Historical Historical Forma Historical
1997 1996 1996 1997 1996 1996
(millions)
Time Warner:
Publishing $ 266 $ 236 $ 236 $216 $181 $181
Music 265 311 311 82 125 125
Cable Networks-TBS 321 252 - 184 129 -
Filmed Entertainment
-TBS 38 (43) - (6) (90) -
Cable 271 230 230 70 19 19
Intersegment
elimination (7) (21) - (7) (21) -
Total $1,154 $ 965 $ 777 $539 $343 $325
Entertainment Group:
Filmed Entertainment
-Warner Bros. $ 305 $ 277 $ 277 $154 $152 $152
Broadcasting
-The WB Network (38) (36) (36) (39) (36) (36)
Cable Networks-HBO 199 168 168 189 159 159
Cable 850 744 744 351 293 293
Total $1,316 $1,153 $1,153 $655 $568 $568
Three Months Ended June 30, 1997 Compared to Three Months
Ended June 30, 1996
Time Warner had revenues of $3.193 billion and net
income of $30 million ($.09 loss per common share after
preferred dividend requirements) for the three months ended
June 30, 1997, compared to revenues of $2.139 billion, a
loss of $31 million before an extraordinary loss on the
retirement of debt ($.26 loss per common share) and a net
loss of $40 million ($.28 loss per common share) for the
three months ended June 30, 1996. Time Warner's equity in
the pretax income of the Entertainment Group was $108
million for the three months ended June 30, 1997, compared
to $93 million for the three months ended June 30, 1996.
Time Warner's historical results of operations include
the operating results of TBS from October 10, 1996. On a pro
forma basis, giving effect to the Time Warner Transactions
as if each of such transactions had occurred at the
beginning of 1996, Time Warner would have reported for the
three months ended June 30, 1996, revenues of $3.033
billion, EBITDA of $552 million, operating income of $241
million, equity in the pretax income of the Entertainment
Group of $93 million, a loss before extraordinary item of
$61 million ($.24 loss per common share) and a net loss of
$70 million ($.26 loss per common share). No pro forma
financial information has been presented for Time Warner for
the three months ended June 30, 1997 because all of such
transactions are already reflected in the historical
financial statements of Time Warner.
Time Warner's operating results improved from a pro
forma net loss of $70 million for the three months ended
June 30, 1996 to net income of $30 million for the three
months ended June 30, 1997. As discussed more fully below,
this improvement principally resulted from an overall
increase in Time Warner's operating income, increased income
from its equity in the pretax income of the Entertainment
Group and the absence of a $9 million extraordinary loss on
the retirement of debt recorded in 1996. On a historical
basis, such underlying operating trends were mitigated by an
overall increase in interest expense principally relating to
the assumption of approximately $2.8
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billion of debt in the TBS Transaction, and an increase in
noncash amortization of intangible assets, also relating to
the TBS Transaction. On a historical basis, after preferred
dividend requirements, Time Warner's net loss applicable to
common shares improved to $49 million for the three months
ended June 30, 1997, compared to $110 million for the three
months ended June 30, 1996. This improvement, as well as the
dilutive effect from issuing 179.8 million shares of common
stock in connection with the TBS Transaction, resulted in a
net loss per common share of $.09 for the three months ended
June 30, 1997, compared to a $.28 net loss per common share
for the three months ended June 30, 1996.
On a historical basis, the Entertainment Group had
revenues of $2.731 billion and net income of $89 million for
the three months ended June 30, 1997, compared to revenues
of $2.610 billion and net income of $72 million for the
three months ended June 30, 1996. As discussed more fully
below, the Entertainment Group's net income increased in
1997 as compared to 1996 principally due to an overall
increase in operating income generated by its business segments.
The relationship between income before income taxes and
income tax expense of Time Warner is principally affected by
the amortization of goodwill and certain other financial
statement expenses that are not deductible for income tax
purposes. Income tax expense of Time Warner includes all
income taxes related to its allocable share of partnership
income and its equity in the income tax expense of corporate
subsidiaries of the Entertainment Group.
Time Warner
Publishing. Revenues increased to $1.053 billion,
compared to $1.038 billion in the second quarter of 1996.
EBITDA increased to $174 million from $156 million.
Depreciation and amortization amounted to $25 million in
1997 and $31 million in 1996. Operating income increased to
$149 million from $125 million. Excluding the effect from
operations that were either recently sold or acquired,
revenues benefited from increases in advertising and
circulation revenues. Contributing to the revenue gains were
increases achieved by People, Sports Illustrated and
Entertainment Weekly. EBITDA and operating income increased
principally as a result of the revenue gains, as well as
savings attributable to lower paper costs.
Music. Revenues decreased to $822 million, compared to
$876 million in the second quarter of 1996. EBITDA decreased
to $125 million from $165 million. Depreciation and
amortization, including noncash amortization of intangible
assets related to the purchase of WCI, amounted to $93
million in 1997 and $95 million in 1996. Operating income
decreased to $32 million from $70 million. Despite the Music
division maintaining its leading domestic market share for
the year (20%), the decline in revenues principally related
to continuing industry-wide softness in the overexpanded
U.S. retail marketplace and a decline in international
recorded music sales. EBITDA and operating income decreased
principally as a result of the decline in revenues and lower
results from direct marketing activities. Management expects
that these domestic and international trends will continue
to affect 1997 operating results.
Cable Networks-TBS. Cable Networks results reflect the
acquisition of TBS effective in October 1996. Such operating
results are not comparable to the prior year and,
accordingly, are discussed on a pro forma basis.
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Revenues increased to $750 million, compared to $645
million on a pro forma basis in the second quarter of 1996.
EBITDA increased to $186 million from $132 million on a pro
forma basis. Depreciation and amortization, including
noncash amortization of intangible assets related to the
purchase of TBS, amounted to $71 million in 1997 and $63
million on a pro forma basis in 1996. Operating income
increased to $115 million from $69 million on a pro forma
basis. Revenues benefited from increases in advertising and
subscription revenues. Advertising revenues increased due to
a strong overall advertising market for the division's major
branded networks, including TNT, TBS Superstation, CNN and
Cartoon Network. Subscription revenues increased as a result
of higher rates and an increase in subscriptions, primarily
at TNT, CNN, Cartoon Network and Turner Classic Movies.
EBITDA and operating income increased principally as a
result of the revenue gains, offset in part by start-up
costs for new networks, including the sports news network
CNN/SI and the Spanish-language news network CNN en Espanol.
Filmed Entertainment-TBS. Filmed Entertainment results
reflect the acquisition of TBS effective in October 1996.
Such operating results are not comparable to the prior year
and, accordingly, are discussed on a pro forma basis.
Revenues increased to $337 million, compared to $264
million on a pro forma basis in the second quarter of 1996.
EBITDA increased to $31 million from a loss of $21 million
on a pro forma basis. Depreciation and amortization,
including noncash amortization of intangible assets related
to the purchase of TBS, amounted to $21 million in 1997 and
$24 million on a pro forma basis in 1996. Operating income
increased to $10 million in 1997 from an operating loss of
$45 million on a pro forma basis in 1996. Revenues benefited
from increases in world-wide theatrical, home video and
television distribution revenues. EBITDA and operating
income increased principally as a result of the revenue
gains and the absence of write-offs recorded in 1996 that
related to disappointing results for theatrical releases.
Cable. Revenues increased to $250 million, compared to
$230 million in the second quarter of 1996. EBITDA increased
to $135 million from $118 million. Depreciation and
amortization, including noncash amortization of intangible
assets related to the 1995 and 1996 cable acquisitions,
amounted to $100 million in 1997 and $98 million in 1996.
Operating income increased to $35 million from $20 million.
Revenues benefited from an increase in basic cable
subscribers, increases in regulated cable rates as permitted
under Time Warner Cable's "social contract" with the FCC and
an increase in advertising and pay-per-view revenues. EBITDA
and operating income increased principally as a result of
the revenue gains.
Interest and Other, Net. Interest and other, net,
increased to $303 million in the second quarter of 1997,
compared to $282 million in the second quarter of 1996.
Interest expense increased to $256 million, compared to $224
million, principally due to the assumption of approximately
$2.8 billion of debt in the TBS Transaction. Other expense,
net, decreased to $47 million in the second quarter of 1997
from $58 million in the second quarter of 1996, principally
because of an increase in investment-related income, offset
in part by costs associated with the Company's receivables
securitization program. The increase in investment-related
income principally related to gains on the sale of
investments and lower losses from reductions in the carrying
value of certain investments.
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Entertainment Group
Filmed Entertainment-Warner Bros. Revenues decreased
to $1.257 billion, compared to $1.272 billion in the second
quarter of 1996. EBITDA increased to $155 million from $141
million. Depreciation and amortization, including noncash
amortization of intangible assets related to the purchase of
WCI, amounted to $75 million in 1997 and $62 million in
1996. Operating income increased to $80 million from $79
million. Revenues decreased principally as a result of lower
worldwide theatrical and home video revenues, offset in part
by significant increases in worldwide television
distribution revenues. EBITDA and operating income increased
principally as a result of the strong performance of
worldwide television distribution operations. Operating
income was further affected by higher depreciation and
amortization principally related to the expansion of theme
parks and consumer products operations.
Broadcasting - The WB Network. Revenues increased to
$29 million, compared to $18 million in the second quarter
of 1996. EBITDA decreased to a loss of $18 million from a
loss of $12 million. Depreciation and amortization amounted
to $1 million in 1997. Operating losses increased to $19
million from $12 million. The increase in revenues primarily
resulted from the expansion of programming in September 1996
to three nights of primetime scheduling and the expansion of
Kids' WB!, the network's animated programming lineup on
Saturday mornings and weekdays. The 1997 operating loss
principally resulted from the expanded programming schedule
and was mitigated by the exercise of an option by a limited
partner in the first quarter of 1997 to increase its
ownership in this network. Due to the start-up nature of
this national broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $487
million, compared to $456 million in the second quarter of
1996. EBITDA increased to $103 million from $87 million.
Depreciation and amortization amounted to $5 million in 1997
and $4 million in 1996. Operating income increased to $98
million from $83 million. Revenues benefited primarily from
a significant increase in subscriptions. EBITDA and
operating income improved principally as a result of the
revenue gains.
Cable. Revenues increased to $1.066 billion, compared
to $961 million in the second quarter of 1996. EBITDA
increased to $419 million from $376 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $251
million in 1997 and $229 million in 1996. Operating income
increased to $168 million from $147 million. Revenues
benefited from an increase in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an
increase in advertising and pay-per-view revenues. EBITDA
and operating income increased as a result of the revenue
gains. Operating income was further affected by higher
depreciation and amortization related to capital spending.
Interest and Other, Net. Interest and other, net, was
$139 million in the second quarter of 1997, compared to $134
million in the second quarter of 1996. Interest expense was
$120 million in 1997 and $119 million in 1996. There was
other expense, net, of $19 million in the second quarter of
1997, compared to $15 million in the second quarter of 1996,
principally due to an increase in dividend requirements on
preferred stock of a subsidiary issued in February 1997 to
reduce TWE's bank debt. The preferred stock was issued by a
newly formed, substantially owned subsidiary of TWE (the
"REIT") intended to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended.
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Six Months Ended June 30, 1997 Compared to Six Months Ended
June 30, 1996
Time Warner had revenues of $6.227 billion, income of
$82 million before an extraordinary loss on the retirement
of debt ($.13 loss per common share after preferred dividend
requirements) and net income of $65 million ($.16 loss per
common share) for the six months ended June 30, 1997,
compared to revenues of $4.207 billion, a loss of $124
million before an extraordinary loss on the retirement of
debt ($.58 loss per common share) and a net loss of $159
million ($.67 loss per common share) for the six months
ended June 30, 1996. Time Warner's equity in the pretax
income of the Entertainment Group was $426 million for the
six months ended June 30, 1997, compared to $209 million for
the six months ended June 30, 1996.
Time Warner's historical results of operations include
the operating results of TBS from October 10, 1996. On a pro
forma basis, giving effect to the Time Warner Transactions
as if each of such transactions had occurred at the
beginning of 1996, Time Warner would have reported for the
six months ended June 30, 1996, revenues of $5.868 billion,
EBITDA of $965 million, operating income of $343 million,
equity in the pretax income of the Entertainment Group of
$209 million, a loss before extraordinary item of $182
million ($.59 loss per common share) and a net loss of $217
million ($.65 loss per common share). No pro forma financial
information has been presented for Time Warner for the six
months ended June 30, 1997 because all of such transactions
are already reflected in the historical financial statements
of Time Warner.
Time Warner's operating results improved from a pro
forma net loss of $217 million for the six months ended June
30, 1996 to net income of $65 million for the six months
ended June 30, 1997. As discussed more fully below, this
improvement principally resulted from an overall increase in
Time Warner's operating income, a significant increase in
income from its equity in the pretax income of the
Entertainment Group and an $18 million decrease in
extraordinary losses on the retirement of debt recorded in
each period. On a historical basis, such underlying
operating trends were mitigated by an overall increase in
interest expense principally relating to the assumption of
approximately $2.8 billion of debt in the TBS Transaction,
and an increase in noncash amortization of intangible
assets, also relating to the TBS Transaction. On a
historical basis, after preferred dividend requirements that
increased by $53 million due to the April 1996 issuance of
Series M Preferred Stock, Time Warner's net loss applicable
to common shares improved to $92 million for the six months
ended June 30, 1997, compared to $263 million for the six
months ended June 30, 1996. This improvement, as well as the
dilutive effect from issuing 179.8 million shares of common
stock in connection with the TBS Transaction, resulted in a
net loss per common share of $.16 for the six months ended
June 30, 1997, compared to a $.67 net loss per common share
for the six months ended June 30, 1996.
On a historical basis, the Entertainment Group had
revenues of $5.333 billion and net income of $407 million
for the six months ended June 30, 1997, compared to revenues
of $5.097 billion and net income of $170 million for the six
months ended June 30, 1996. As discussed more fully below,
the Entertainment Group's net income increased significantly
in 1997 as compared to 1996 principally due to an overall
increase in operating income generated by its business
segments and the inclusion of an approximately $250 million
pretax gain on the first quarter of 1997 sale of TWE's 58%
interest in E! Entertainment Television, Inc., offset in
part by an increase in minority interest expense related to
the TWE-Advance/Newhouse Partnership.
The relationship between income before income taxes and
income tax expense of Time Warner is principally affected by
the amortization of goodwill and certain other financial
statement expenses that are not deductible for
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income tax purposes. Income tax expense of Time Warner
includes all income taxes related to its allocable share of
partnership income and its equity in the income tax expense
of corporate subsidiaries of the Entertainment Group.
Time Warner
Publishing. Revenues increased to $1.977 billion,
compared to $1.917 billion in the first six months of 1996.
EBITDA increased to $266 million from $236 million.
Depreciation and amortization amounted to $50 million in
1997 and $55 million in 1996. Operating income increased to
$216 million from $181 million. Excluding the effect from
operations that were either recently sold or acquired,
revenues benefited from increases in advertising and
circulation revenues. All major magazine brands achieved
revenue gains, including People, Sports Illustrated, Time
and Entertainment Weekly. EBITDA and operating income
increased principally as a result of the revenue gains, as
well as savings attributable to lower paper costs.
Music. Revenues decreased to $1.755 billion, compared
to $1.859 billion in the first six months of 1996. EBITDA
decreased to $265 million from $311 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the purchase of WCI, amounted
to $183 million in 1997 and $186 million in 1996. Operating
income decreased to $82 million from $125 million. Despite
the Music division maintaining its leading domestic market
share for the year (20%), the decline in revenues
principally related to continuing industry-wide softness in
the overexpanded U.S. retail marketplace and a decline in
international recorded music sales. EBITDA and operating
income decreased principally as a result of the decline in
revenues and lower results from direct marketing activities,
offset in part by certain one-time gains. Management expects
that these domestic and international trends will continue
to affect 1997 operating results.
Cable Networks-TBS. Cable Networks results reflect the
acquisition of TBS effective in October 1996. Such operating
results are not comparable to the prior year and,
accordingly, are discussed on a pro forma basis.
Revenues increased to $1.344 billion, compared to
$1.157 billion on a pro forma basis in the first six months
of 1996. EBITDA increased to $321 million from $252 million
on a pro forma basis. Depreciation and amortization,
including noncash amortization of intangible assets related
to the purchase of TBS, amounted to $137 million in 1997 and
$123 million on a pro forma basis in 1996. Operating income
increased to $184 million from $129 million on a pro forma
basis. Revenues benefited from increases in advertising and
subscription revenues. Advertising revenues increased due to
a strong overall advertising market for the division's major
branded networks, including TNT, TBS Superstation, CNN and
Cartoon Network. Subscription revenues increased as a result
of higher rates and an increase in subscriptions, primarily
at TNT, CNN, Cartoon Network and Turner Classic Movies.
EBITDA and operating income increased principally as a
result of the revenue gains, offset in part by start-up
costs for new networks, including the sports news network
CNN/SI and the Spanish-language news network CNN en Espanol.
Filmed Entertainment-TBS. Filmed Entertainment results
reflect the acquisition of TBS effective in October 1996.
Such operating results are not comparable to the prior year
and, accordingly, are discussed on a pro forma basis.
Revenues increased to $734 million, compared to $558
million on a pro forma basis in the first six months of
1996. EBITDA increased to $38 million from a loss of $43
million on a pro forma basis. Depreciation and
<PAGE>
amortization, including noncash amortization of intangible
assets related to the purchase of TBS, amounted to $44
million in 1997 and $47 million on a pro forma basis in
1996. Operating losses decreased to $6 million in 1997 from
$90 million on a pro forma basis in 1996. Revenues benefited
from increases in worldwide theatrical, home video and
television distribution revenues. EBITDA and operating
income increased principally as a result of the revenue
gains and the absence of write-offs recorded in 1996 that
related to disappointing results for theatrical releases.
Cable. Revenues increased to $492 million, compared to
$447 million in the first six months of 1996. EBITDA
increased to $271 million from $230 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the 1995 and 1996 cable
acquisitions, amounted to $201 million in 1997 and $211
million in 1996. Operating income increased to $70 million
from $19 million. Revenues benefited from an increase in
basic cable subscribers, increases in regulated cable rates
as permitted under Time Warner Cable's "social contract"
with the FCC and an increase in advertising and pay-per-view
revenues. EBITDA and operating income increased as a result
of the revenue gains, as well as gains of approximately $11
million recognized in the first quarter of 1997 in
connection with the sale of certain investments. Operating
income was further affected by lower depreciation and
amortization principally relating to changes in useful lives
of certain assets acquired in 1996.
Interest and Other, Net. Interest and other, net,
increased to $595 million in the first six months of 1997,
compared to $578 million in the first six months of 1996.
Interest expense increased to $534 million, compared to $471
million, principally due to the assumption of approximately
$2.8 billion of debt in the TBS Transaction. Other expense,
net, decreased to $61 million in the first six months of
1997 from $107 million in the first six months of 1996,
principally because of an increase in investment-related
income and gains on foreign exchange contracts, offset in
part by costs associated with the Company's receivables
securitization program. The increase in investment-related
income principally related to gains on the sale of
investments and lower losses from reductions in the carrying
value of certain investments.
Entertainment Group
Filmed Entertainment-Warner Bros. Revenues decreased
to $2.431 billion, compared to $2.490 billion in the first
six months of 1996. EBITDA increased to $305 million from
$277 million. Depreciation and amortization, including
noncash amortization of intangible assets related to the
purchase of WCI, amounted to $151 million in 1997 and $125
million in 1996. Operating income increased to $154 million
from $152 million. Revenues decreased principally as a
result of lower worldwide theatrical and home video
revenues, offset in part by significant increases in
worldwide television distribution revenues. EBITDA and
operating income increased principally as a result of the
strong performance of worldwide television distribution
operations and a gain on the sale of an investment.
Broadcasting - The WB Network. Revenues increased to
$53 million, compared to $33 million in the first six months
of 1996. EBITDA decreased to a loss of $38 million from a
loss of $36 million. Depreciation and amortization amounted
to $1 million in 1997. Operating losses increased to $39
million from $36 million. The increase in revenues primarily
resulted from the expansion of programming in September 1996
to three nights of primetime scheduling and the expansion of
Kids' WB!, the network's animated programming lineup on
Saturday mornings and weekdays. The 1997 operating loss
principally resulted from the expanded programming schedule
and was mitigated by the exercise of an option by a limited
partner in the first quarter of 1997 to increase its ownership
in this network. Due to the start-up nature of this national
broadcast operation, losses are expected to continue.
<PAGE>
Cable Networks-HBO. Revenues increased to $970
million, compared to $875 million in the first six months of
1996. EBITDA increased to $199 million from $168 million.
Depreciation and amortization amounted to $10 million in
1997 and $9 million in 1996. Operating income increased to
$189 million from $159 million. Revenues benefited primarily
from a significant increase in subscriptions. EBITDA and operating
income improved principally as a result of the revenue gains.
Cable. Revenues increased to $2.086 billion, compared
to $1.908 billion in the first six months of 1996. EBITDA
increased to $850 million from $744 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $499
million in 1997 and $451 million in 1996. Operating income
increased to $351 million from $293 million. Revenues
benefited from an increase in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an
increase in advertising and pay-per-view revenues. EBITDA
and operating income increased as a result of the revenue
gains, as well as net gains of approximately $24 million
recognized in the first quarter of 1997 in connection with
the sale or exchange of certain cable systems. Operating
income was further affected by higher depreciation and
amortization related to capital spending.
Interest and Other, Net. Interest and other, net,
decreased to $11 million in the first six months of 1997,
compared to $222 million in the first six months of 1996.
Interest expense decreased to $236 million, compared to $240
million in 1996. There was other income, net, of $225
million in the first six months of 1997, compared to $18
million in the first six months of 1996, principally due to
higher gains on asset sales, including an approximately $250
million pretax gain on the sale of an interest in E!
Entertainment Television, Inc. recognized in the first
quarter of 1997. This income was offset in part by an
increase in dividend requirements on preferred stock of the
REIT issued in February 1997 to reduce TWE's bank debt.
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1997
Time Warner
Financial Condition
At June 30, 1997, Time Warner had $12.7 billion of
debt, $470 million of cash and equivalents (net debt of
$12.2 billion), $402 million of borrowings against future
stock option proceeds, $949 million of mandatorily
redeemable preferred securities of subsidiaries, $1.8
billion of Series M Preferred Stock and $9.4 billion of
shareholders' equity, compared to $12.7 billion of debt,
$452 million of available cash and equivalents (net debt of
$12.2 billion), $488 million of borrowings against future
stock option proceeds, $949 million of mandatorily
redeemable preferred securities of subsidiaries, $1.7
billion of Series M Preferred Stock and $9.5 billion of
shareholders' equity at December 31, 1996.
<PAGE>
Investment in TWE
Time Warner's investment in TWE at June 30, 1997
consisted of interests in 74.49% of the Series A Capital and
Residual Capital of TWE, and 100% of the Senior Capital and
Series B Capital of TWE. Such priority capital interests
provide Time Warner (and with respect to the Series A
Capital only, U S WEST) with certain priority claims to the
net partnership income of TWE and distributions of TWE
partnership capital, including certain priority
distributions of partnership capital in the event of
liquidation or dissolution of TWE. Each level of priority
capital interest provides for an annual rate of return equal
to or exceeding 8%, including an above-market 13.25% annual
rate of return (11.25% to the extent concurrently
distributed) related to Time Warner's Series B Capital
interest, which, when taken together with Time Warner's
contributed capital, represented a cumulative priority
Series B Capital interest of $5.6 billion at June 30, 1997.
While the TWE partnership agreement contemplates the
reinvestment of significant partnership cash flows in the
form of capital expenditures and otherwise provides for
certain other restrictions that are expected to limit cash
distributions on partnership interests for the foreseeable
future, Time Warner's $1.6 billion Senior Capital interest
and, to the extent not previously distributed, partnership
income allocated thereto (based on an 8% annual rate of
return) is required to be distributed to Time Warner in
three annual installments beginning on July 1, 1997. In July
1997, Time Warner received a $535 million distribution
relating to its Senior Capital interest.
Debt Refinancings
During the first quarter of 1997, Time Warner entered
into a number of financing transactions, which resulted in
the refinancing of approximately $600 million of debt and
the elimination of the potential dilution from the
conversion of TBS's zero coupon subordinated convertible
notes due 2007 (the "TBS Convertible Notes") into 5.6
million shares of Time Warner common stock. Time Warner
redeemed $300 million principal amount of 10.75% Senior
Notes due January 30, 2002 of TWI Cable and approximately
$283 million accreted amount of TBS Convertible Notes at an
aggregate redemption price of approximately $600 million,
including redemption premiums and accrued interest thereon.
In conjunction with the refinancing, Old Time Warner issued
$600 million principal amount of Floating Rate Reset Notes
due December 30, 2031 that are redeemable at the election of
the holders, in whole but not in part, on December 30, 2001
(the "Five-Year Floating Rate Notes"). The Five-Year
Floating Rate Notes bear interest at a floating rate equal
to LIBOR less 25 basis points until December 30, 2001, at
which time, if not redeemed, the interest rate will be reset
at a fixed rate equal to 6.59% plus a margin based upon Old
Time Warner's credit risk at such time.
In July 1997, Old Time Warner issued $600 million
principal amount of Floating Rate Reset Notes due July 29,
2009 that are redeemable at the election of the holders, in
whole but not in part, on July 29, 1999 (the "Two-Year
Floating Rate Notes"). The net proceeds therefrom will be
used by Old Time Warner in the third quarter of 1997 to
redeem or repay other indebtedness. The Two-Year Floating
Rate Notes bear interest at a floating rate equal to LIBOR
less 115 basis points until July 29, 1999, at which time, if
not redeemed, the interest rate will be reset at a fixed
rate equal to 6.16% plus a margin based upon Old Time
Warner's credit risk at such time.
<PAGE>
Cash Flows
During the first six months of 1997, Time Warner's cash
provided by operations amounted to $433 million and
reflected $1.154 billion of EBITDA from its Publishing,
Music, Cable Networks-TBS, Filmed Entertainment-TBS and
Cable businesses and $203 million of distributions from TWE,
less $488 million of interest payments, $132 million of
income taxes, $43 million of corporate expenses and $261
million related to an increase in working capital
requirements, other balance sheet accounts and noncash
items. Cash provided by operations of $81 million for the
first six months of 1996 reflected $777 million of business
segment EBITDA and $132 million of distributions from TWE,
less $426 million of interest payments, $133 million of
income taxes, $36 million of corporate expenses and $233
million related to an increase in working capital
requirements, balance sheet accounts and noncash items.
Cash used by investing activities decreased to $226
million in the first six months of 1997, compared to $303
million in 1996, principally as a result of lower investment
spending, offset in part by higher capital expenditures and
a decrease in investment proceeds. Capital expenditures
increased to $283 million in the first six months of 1997,
compared to $161 million in 1996, principally as a result of
capital spending by the TBS businesses acquired in October
1996 and higher capital spending by the cable division.
Cash used by financing activities was $251 million in
the first six months of 1997, compared to $481 million in
the first six months of 1996. The use of cash in 1997
principally resulted from the repurchase of approximately
954 thousand shares of Time Warner common stock at an
aggregate cost of $36 million and the payment of $167
million of dividends. Time Warner also repaid $86 million of
borrowings under the stock option proceeds credit facility
in 1997 using proceeds received from the exercise of
employee stock options. The use of cash in 1996 principally
resulted from the use of $135 million of available cash and
equivalents to finance a portion of the Company's share
repurchase program, the use of $557 million of noncurrent
cash and equivalents raised in December 1995 to redeem debt
and the payment of $135 million of dividends, offset in part
by borrowings incurred to finance the cash portion of the
consideration paid to acquire CVI. In addition, Time Warner
raised approximately $1.55 billion of net proceeds in 1996
from the issuance of 1.6 billion shares of Series M Preferred
Stock and used the net proceeds therefrom to reduce debt.
The assets and cash flows of certain consolidated and
unconsolidated subsidiaries of Time Warner are restricted by
certain borrowing and partnership agreements. The assets and
cash flows of TBS, TWE and TWI Cable are restricted by their
respective bank credit agreements, although each entity is
permitted to incur additional indebtedness to make loans,
advances, distributions and other cash payments to Time
Warner, subject to its individual compliance with the cash
flow coverage and leverage ratio covenants contained
therein. Further, under the TWE partnership agreement, the
assets and cash flows of TWE are unavailable to Time Warner
except through the payment of certain fees, reimbursements,
cash distributions and loans, which are subject to limitations.
Management believes that Time Warner's operating cash
flow, cash and marketable securities and additional
borrowing capacity are sufficient to fund its capital and
liquidity needs for the foreseeable future without
distributions and loans from its restricted subsidiaries,
including TWE, above those permitted by existing agreements.
<PAGE>
Entertainment Group
Financial Condition
The Entertainment Group had $5.8 billion of debt, $240
million of preferred stock of a subsidiary, $1.6 billion of
Time Warner General Partners' Senior Capital and $6.6
billion of partners' capital at June 30, 1997, compared to
$5.7 billion of debt, $1.5 billion of Time Warner General
Partners' Senior Capital and $6.7 billion of partners'
capital at December 31, 1996. Cash and equivalents were $293
million at June 30, 1997, compared to $216 million at
December 31, 1996, reducing the debt-net-of-cash amounts for
the Entertainment Group to $5.5 billion in both periods.
Cash Flows
During the first six months of 1997, the Entertainment
Group's cash provided by operations amounted to $416 million
and reflected $1.316 billion of EBITDA from the Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network,
Cable Networks-HBO and Cable businesses, less $243 million
of interest payments, $35 million of income taxes, $36
million of corporate expenses and $586 million related to an
increase in working capital requirements, other balance
sheet accounts and noncash items. Cash provided by
operations of $1.198 billion in the first six months of 1996
reflected $1.153 billion of business segment EBITDA and $359
million related to a reduction in working capital
requirements, other balance sheet accounts and noncash
items, less $247 million of interest payments, $32 million
of income taxes and $35 million of corporate expenses.
Cash used by investing activities was $425 million in
the first six months of 1997, compared to $651 million in
the first six months of 1996, principally as a result of a
$175 million increase in proceeds from the sale of
investments and lower capital expenditures. Capital
expenditures were $734 in 1997 and $781 million in 1996.
Cash provided by financing activities was $86 million
in the first six months of 1997, compared to cash used by
financing activities of $538 million in the first six months
of 1996, principally as a result of a lower level of debt
reduction in the first six months of 1997, the issuance of
250,000 shares of preferred stock of a subsidiary for
aggregate net proceeds of $243 million and a $71 million
increase in distributions paid to Time Warner, offset in
part by the absence of $169 million of collections on the
note receivable from U S WEST that was fully paid in 1996.
The preferred stock was issued by a newly formed, substantially
owned subsidiary intended to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended.
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to
fund its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been
engaged in a plan to upgrade the technological capability
and reliability of its cable television systems and develop
new services, which it believes will position the business
for sustained, long-term growth. Capital spending by Time
Warner Cable, including the cable operations of both Time
Warner and TWE, amounted to $791 million in the six months
ended June 30, 1997, compared to $681
<PAGE>
million in the six months ended June 30, 1996. For the full
year of 1997, cable capital spending is expected to be
relatively comparable to 1996 levels, with approximately
$900 million budgeted for the remainder of 1997. Capital
spending by Time Warner Cable is expected to be funded by
cable operating cash flow. In exchange for certain
flexibility in establishing cable rate pricing structures
for regulated services that went into effect on January 1,
1996 and consistent with Time Warner Cable's long-term
strategic plan, Time Warner Cable has agreed with the FCC to
invest a total of $4 billion in capital costs in connection
with the upgrade of its cable infrastructure, which is
expected to be substantially completed over a five-year
period ending December 31, 2000. The agreement with the FCC
covers all of the cable operations of Time Warner Cable,
including the owned or managed cable television systems of
Time Warner, TWE and the TWE-Advance/Newhouse Partnership.
Management expects to continue to finance such level of
investment through the growth in cable operating cash flow
derived from increases in subscribers and cable rates, bank
credit agreement borrowings and the development of new
revenue streams from expanded programming options, high
speed data transmission and other services.
Filmed Entertainment Backlog
Backlog represents the amount of future revenue not yet
recorded from cash contracts for the licensing of theatrical
and television product for pay cable, basic cable, network
and syndicated television exhibition. Backlog of Warner
Bros. amounted to $1.839 billion at June 30, 1997 compared
to $1.502 billion at December 31, 1996 (including amounts
relating to the licensing of film product to Time Warner's
and TWE's cable television networks, collectively, of $715
million and $463 million, respectively). Backlog of the
recently-acquired film production companies of TBS amounted
to approximately $261 million at June 30, 1997 compared to
$290 million at December 31, 1996 (including amounts
relating to the licensing of film product to Time Warner's
cable television networks of approximately $100 million and
$90 million, respectively).
Because backlog generally relates to contracts for the
licensing of theatrical and television product which have
already been produced, the recognition of revenue for such
completed product is principally only dependent upon the
commencement of the availability period for telecast under
the terms of the related licensing agreement. Cash licensing
fees are collected periodically over the term of the related
licensing agreements. Accordingly, the portion of backlog
for which cash advances have not already been received has
significant off-balance sheet asset value as a source of
future funding. The backlog excludes advertising barter
contracts, which are also expected to result in the future
realization of revenues and cash through the sale of
advertising spots received under such contracts.
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1997 1996
(millions, except
per share amounts)
ASSETS
Current assets
Cash and equivalents $ 470 $ 452
Receivables, less allowances of $839
and $976 million 2,180 2,421
Inventories 744 941
Prepaid expenses 1,050 1,007
Total current assets 4,444 4,821
Noncurrent cash and equivalents - 62
Noncurrent inventories 1,757 1,698
Investments in and amounts due to and from
Entertainment Group 6,050 5,814
Other investments 1,903 1,919
Property, plant and equipment, net 2,032 1,986
Music catalogues, contracts and copyrights 980 1,035
Cable television and sports franchises 4,089 4,203
Goodwill 12,332 12,421
Other assets 1,068 1,105
Total assets $34,655 $35,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 649 $ 715
Participations, royalties and programming
costs payable 1,026 1,196
Debt due within one year 10 11
Other current liabilities 2,024 2,090
Total current liabilities 3,709 4,012
Long-term debt 12,711 12,713
Borrowings against future stock option proceeds 402 488
Deferred income taxes 4,057 4,082
Unearned portion of paid subscriptions 663 679
Other liabilities 978 967
Company-obligated mandatorily redeemable
preferred securities of subsidiaries holding
solely subordinated notes and debentures of
subsidiaries of the Company(a) 949 949
Series M exchangeable preferred stock, $.10
par value, 1.81 million and 1.72 million shares
outstanding and $1.810 billion and $1.720 billion
liquidation preference 1,763 1,672
Shareholders' equity
Preferred stock, $.10 par value, 35.6 million shares
outstanding, $3.559 billion liquidation preference 4 4
Series LMCN-V Common Stock, $.01 par value, 57.1
million and 50.6 million shares outstanding 1 1
Common stock, $.01 par value, 511.5 million and
508.4 million shares outstanding (excluding 46.8
million and 50.0 million treasury shares) 5 5
Paid-in capital 12,447 12,250
Accumulated deficit (3,034) (2,758)
Total shareholders' equity 9,423 9,502
Total liabilities and shareholders' equity $34,655 $35,064
_______________
(a) Includes $374 million of preferred securities
that are redeemable for cash or, at Time Warner's
option, approximately 18.1 million shares of
Hasbro, Inc. common stock owned by Time Warner
(Note 6).
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions, except per share amounts)
Revenues (a) $3,193 $2,139 $6,227 $4,207
Cost of revenues (a)(b) 1,603 1,248 3,453 2,525
Selling, general and administrative(a)(b) 1,245 676 2,235 1,357
Operating expenses 2,848 1,924 5,688 3,882
Business segment operating income 345 215 539 325
Equity in pretax income of Entertainment
Group (a) 108 93 426 209
Interest and other, net (a) (303) (282) (595) (578)
Corporate expenses (a) (22) (18) (43) (36)
Income (loss) before income taxes 128 8 327 (80)
Income tax provision (98) (39) (245) (44)
Income (loss) before extraordinary item 30 (31) 82 (124)
Extraordinary loss on retirement of debt,
net of income tax benefits of $ -,
$5 million, $11 million and $22 million - (9) (17) (35)
Net income (loss) 30 (40) 65 (159)
Preferred dividend requirements (79) (70) (157) (104)
Net loss applicable to common shares $ (49) $ (110) $ (92) $ (263)
Loss per common share:
Loss before extraordinary item $ (.09) $ (.26) $ (.13) $ (.58)
Net loss $ (.09) $ (.28) $ (.16) $ (.67)
Average common shares 561.0 389.5 559.9 390.6
_______________
(a) Includes the following income (expenses) resulting from
transactions with the Entertainment Group and other related
companies for the three and six months ended June 30, 1997,
respectively, and for the corresponding periods in the prior
year: revenues-$73 million and $147 million in 1997, $62
million and $103 million in 1996; cost of revenues-$(61)
million and $(121) million in 1997, $(53) million and $(79)
million in 1996; selling, general and administrative-$3
million and $8 million in 1997, $5 million and $5 million in
1996; equity in pretax income of Entertainment Group-$13
million and $24 million in 1997, $4 million and $(4) million
in 1996; interest and other, net-$(7) million and $(21)
million in 1997, $(8) million and $(17) million in 1996; and
corporate expenses-$18 million and $36 million in 1997,
$18 million and $35 million in 1996.
(b) Includes depreciation and amortization
expense of: $310 $224 $615 $452
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1997 1996
(millions)
OPERATIONS
Net income (loss) $ 65 $(159)
Adjustments for noncash and nonoperating items:
Extraordinary loss on retirement of debt 17 35
Depreciation and amortization 615 452
Noncash interest expense 51 46
Excess of equity in pretax income of Entertainment
Group over distributions (223) (77)
Changes in operating assets and liabilities (92) (216)
Cash provided by operations 433 81
INVESTING ACTIVITIES
Investments and acquisitions (56) (307)
Capital expenditures (283) (161)
Investment proceeds 113 165
Cash used by investing activities (226) (303)
FINANCING ACTIVITIES
Borrowings 1,039 2,298
Debt repayments (1,094) (4,074)
Borrowings (repayments of borrowings) against future
stock option proceeds (86) 225
Repurchases of Time Warner common stock (36) (360)
Dividends paid (167) (135)
Issuance of Series M preferred stock - 1,550
Other 93 15
Cash used by financing activities (251) (481)
DECREASE IN CASH AND EQUIVALENTS (44) (703)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD (a) 514 1,185
CASH AND EQUIVALENTS AT END OF PERIOD $ 470 $ 482
_______________
(a) Includes current and noncurrent cash and equivalents
at December 31, 1996 and 1995.
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
On October 10, 1996, Time Warner Inc. ("Time Warner" or
the "Company") acquired the remaining 80% interest in Turner
Broadcasting System, Inc. ("TBS") that it did not already
own, as more fully described herein (Note 2). As a result of
this transaction, a new parent company with the name "Time
Warner Inc." replaced the old parent company of the same name
("Old Time Warner", now known as Time Warner Companies, Inc.),
and Old Time Warner and TBS became separate, wholly owned
subsidiaries of the new parent company ("New Time Warner").
References herein to "Time Warner" or the "Company" refer to Old
Time Warner prior to October 10, 1996 and New Time Warner thereafter.
Time Warner is the world's leading media and
entertainment company, whose principal business objective is
to create and distribute branded information and
entertainment copyrights throughout the world. Time Warner
classifies its business interests into four fundamental
areas: Entertainment, consisting principally of interests in
recorded music and music publishing, filmed entertainment,
television production, television broadcasting and theme
parks; Cable Networks, consisting principally of interests
in cable television programming and sports franchises;
Publishing, consisting principally of interests in magazine
publishing, book publishing and direct marketing; and Cable,
consisting principally of interests in cable television
systems. A majority of Time Warner's interests in filmed
entertainment, television production, television
broadcasting and cable television systems, and a portion of
its interests in cable television programming are held
through Time Warner Entertainment Company, L.P. ("TWE").
Time Warner owns general and limited partnership interests
in TWE consisting of 74.49% of the pro rata priority capital
("Series A Capital") and residual equity capital ("Residual
Capital"), and 100% of the senior priority capital ("Senior
Capital") and junior priority capital ("Series B Capital").
The remaining 25.51% limited partnership interests in the
Series A Capital and Residual Capital of TWE are held by a
subsidiary of U S WEST, Inc. ("U S WEST"). Time Warner does
not consolidate TWE and certain related companies (the
"Entertainment Group") for financial reporting purposes
because of certain limited partnership approval rights
related to TWE's interest in certain cable television systems.
Each of the business interests within Entertainment,
Cable Networks, Publishing and Cable is important to
management's objective of increasing shareholder value
through the creation, extension and distribution of
recognizable brands and copyrights throughout the world.
Such brands and copyrights include (1) copyrighted music
from many of the world's leading recording artists that is
produced and distributed by a family of established record
labels such as Warner Bros. Records, Atlantic Records,
Elektra Entertainment and Warner Music International, (2)
the unique and extensive film, television and animation
libraries of Warner Bros. and TBS, and trademarks such as
the Looney Tunes characters, Batman and The Flintstones, (3)
The WB Network, a national broadcasting network launched in
1995 as an extension of the Warner Bros. brand and as an
additional distribution outlet for the Company's collection
of children's cartoons and television programming, (4) Six
Flags, the largest regional theme park operator in the
United States, in which TWE owns a 49% interest, (5) leading
cable television networks, such as HBO, Cinemax, CNN, TNT
and TBS Superstation, (6) sports franchises consisting of
the Atlanta Braves and Atlanta Hawks, (7) magazine
franchises such as Time, People and Sports Illustrated and
direct marketing brands such as Time Life Inc. and
Book-of-the-Month Club and (8) Time Warner Cable, the second
largest operator of cable television systems in the U.S.
<PAGE>
The operating results of Time Warner's various business
interests are presented herein as an indication of financial
performance (Note 8). Except for start-up losses incurred in
connection with The WB Network, Time Warner's principal
business interests generate significant operating income and
cash flow from operations. The cash flow from operations
generated by such business interests is considerably greater
than their operating income due to significant amounts of
noncash amortization of intangible assets recognized in
various acquisitions accounted for by the purchase method of
accounting. Noncash amortization of intangible assets
recorded by Time Warner's business interests, including the
unconsolidated business interests of the Entertainment
Group, amounted to $325 million and $256 million for the
three months ended June 30, 1997 and 1996, respectively, and
$646 million and $523 million in the six months ended June
30, 1997 and 1996, respectively.
Basis of Presentation
The accompanying financial statements are unaudited
but, in the opinion of management, contain all the
adjustments (consisting of those of a normal recurring
nature) considered necessary to present fairly the financial
position and the results of operations and cash flows for
the periods presented in conformity with generally accepted
accounting principles applicable to interim periods. The
accompanying financial statements should be read in
conjunction with the audited consolidated financial
statements of Time Warner for the year ended December 31, 1996.
The consolidated financial statements of Time Warner
reflect the acquisition of Cablevision Industries
Corporation and related companies ("CVI") effective as of
January 4, 1996 and TBS effective as of October 10, 1996.
Certain reclassifications have been made to the prior years'
financial statements to conform to the 1997 presentation.
In February 1997, the Financial Accounting Standards
Board issued Statement No. 128, "Earnings per Share" ("FAS
128"), effective for fiscal years beginning after December
15, 1997. The new rules establish simplified standards for
computing and presenting earnings per share. Time Warner
does not expect that the adoption of FAS 128 will have a
material effect on its financial statements.
2. MERGERS AND ACQUISITIONS
TBS Transaction
On October 10, 1996, New Time Warner acquired the
remaining 80% interest in TBS that it did not already own
(the "TBS Transaction"). As part of the transaction, each of
Old Time Warner and TBS became a separate, wholly owned
subsidiary of New Time Warner which combines, for financial
reporting purposes, the consolidated net assets and
operating results of Old Time Warner and TBS. Each issued
and outstanding share of each class of capital stock of Old
Time Warner was converted into one share of a substantially
identical class of capital stock of New Time Warner.
In connection with the TBS Transaction, New Time Warner issued
(i) approximately 179.8 million shares of common stock (including
57 million shares of a special class of non-redeemable common
stock having 1/100th of a vote per share on certain limited matters
("Series LMCN-V Common Stock") to affiliates of Liberty Media
Corporation ("LMC"), a subsidiary of Tele-Communications,
Inc.), in exchange for shares of TBS capital stock and
<PAGE>
pursuant to a separate option agreement, as amended, with LMC
and its affiliates (the "SSSI Option Agreement") and (ii)
approximately 14 million stock options to replace all outstanding
TBS stock options. New Time Warner has also fully and
unconditionally guaranteed all of TBS's and Old Time Warner's
outstanding publicly traded indebtedness, which amounted to
$747 million and $7.806 billion, respectively, at June 30, 1997.
Of the aggregate consideration issued in the TBS Transaction,
6.4 million shares of Series LMCN-V Common Stock were issued to
LMC and its affiliates in June 1997 pursuant to the SSSI Option
Agreement. The SSSI Option Agreement provides New Time Warner
with an option to acquire substantially all of the assets of
Southern Satellite Systems, Inc. and its affiliates ("SSSI"), a
subsidiary of LMC that currently provides uplink and
distribution services for WTBS (the "TBS Superstation"), for
approximately $213 million of consideration payable, at the
election of New Time Warner, in cash or additional shares of
LMCN-V Common Stock. New Time Warner expects to exercise this
option when the TBS Superstation is converted to a copyright-paid,
cable television programming service, which is expected to
occur on December 31, 1997.
The TBS Transaction was accounted for by the purchase
method of accounting for business combinations; accordingly,
the cost to acquire TBS of approximately $6.2 billion was
preliminarily allocated to the net assets acquired in
proportion to estimates of their respective fair values, as
follows: goodwill-$6.746 billion; other current and
noncurrent assets-$3.806 billion; long-term debt-$2.765
billion; deferred income taxes-$189 million; and other
current and noncurrent liabilities-$1.416 billion.
CVI Acquisition
On January 4, 1996, Time Warner acquired CVI which owned
cable television systems serving approximately 1.3 million
subscribers, in exchange for the issuance of approximately 2.9
million shares of common stock and approximately 6.3 million
shares of convertible preferred stock and the assumption
or incurrence of approximately $2 billion of indebtedness.
The acquisition was accounted for by the purchase method of
accounting for business combinations; accordingly, the cost
to acquire CVI of $904 million was allocated to the net assets
acquired in proportion to their respective fair values, as
follows: cable television franchises-$2.390 billion; goodwill-$688
million; other current and noncurrent assets-$481 million;
long-term debt-$1.766 billion; deferred income taxes-$731
million; and other current and noncurrent liabilities-$158 million.
Pro Forma Financial Information
The accompanying consolidated statement of operations
includes the operating results of each acquired business
from the respective closing date of each transaction. On a
pro forma basis, giving effect to the TBS Transaction and
certain 1996 debt refinancings by Time Warner, including the
use of approximately $1.55 billion of net proceeds from the
issuance of Series M exchangeable preferred stock to reduce
debt, as if each of such transactions had occurred at the
beginning of 1996, Time Warner would have reported for the
three and six months ended June 30, 1996, revenues of $3.033
billion and $5.868 billion, depreciation and amortization of
$311 million and $622 million, operating income of $241
million and $343 million, equity in the pretax income of the
Entertainment Group of $93 million and $209 million, a loss
before extraordinary item of $61 million and $182 million
($.24 and $.59 per common share) and a net loss of $70
million and $217 million ($.26 and $.65 per common share).
<PAGE>
3. ENTERTAINMENT GROUP
Time Warner's investment in and amounts due to and from
the Entertainment Group, consisting substantially of TWE, at
June 30, 1997 and December 31, 1996 consists of the following:
June 30, December 31,
1997 1996
(millions)
Investment in TWE $6,272 $6,254
Stock option related distributions due from TWE 259 93
Credit agreement debt due to TWE (400) (400)
Other net liabilities due to TWE, principally related
to home video distribution (208) (256)
Investment in and amounts due to and from TWE 5,923 5,691
Investment in other Entertainment Group companies 127 123
Total $6,050 $5,814
TWE is a Delaware limited partnership that was capitalized
on June 30, 1992 to own and operate substantially all of the
Filmed Entertainment-Warner Bros., Cable Networks-HBO and Cable
businesses previously owned by subsidiaries of Time Warner.
Time Warner, through its wholly owned subsidiaries, collectively
owns general and limited partnership interests in TWE
consisting of 74.49% of the Series A Capital and Residual
Capital and 100% of the Senior Capital and Series B Capital.
The remaining 25.51% limited partnership interests in the
Series A Capital and Residual Capital of TWE are owned by
U S WEST. Certain Time Warner subsidiaries are the general
partners of TWE ("Time Warner General Partners").
The TWE partnership agreement provides for special allocations
of income, loss and distributions of partnership capital, including
priority distributions in the event of liquidation. TWE reported
net income of $402 million and $168 million in the six months
ended June 30, 1997 and 1996, respectively, no portion of which
was allocated to the limited partnership interests.
Each Time Warner General Partner has guaranteed a pro rata portion
of approximately $5.6 billion of TWE's debt and accrued interest at
June 30, 1997, based on the relative fair value of the net assets each
Time Warner General Partner contributed to TWE. Such indebtedness is
recourse to each Time Warner General Partner only to the extent of
its guarantee.
<PAGE>
Set forth below is summarized financial information
of the Entertainment Group:
TIME WARNER ENTERTAINMENT GROUP
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Operating Statement Information
Revenues $2,731 $2,610 $5,333 $5,097
Depreciation and amortization 332 295 661 585
Business segment operating income 327 297 655 568
Interest and other, net(1) 139 134 11 222
Minority interest 56 52 164 102
Income before income taxes 114 93 444 209
Net income 89 72 407 170
__________________
(1) Includes a pretax gain of approximately $250 million
recognized in the first quarter of 1997 related to the sale
of an interest in E! Entertainment Television, Inc.
Six Months
Ended June 30,
1997 1996
(millions)
Cash Flow Information
Cash provided by operations $ 416 $1,198
Capital expenditures (734) (781)
Investments and acquisitions (62) (66)
Investment proceeds 371 196
Borrowings 428 63
Debt repayments (323) (670)
Issuance of preferred stock of subsidiary 243 -
Capital distributions (203) (132)
Collections on note receivable from U S WEST - 169
Other financing activities, net (59) 32
Increase in cash and equivalents 77 9
June 30, December 31,
1997 1996
(millions)
Balance Sheet Information
Cash and equivalents $ 293 $ 216
Total current assets 3,559 3,147
Total assets 20,257 20,027
Total current liabilities 3,649 4,092
Long-term debt 5,781 5,676
Minority interests 1,137 1,020
Preferred stock of subsidiary 240 -
Time Warner General Partners' Senior Capital 1,605 1,543
Partners' capital 6,642 6,681
The assets and cash flows of TWE are restricted by the TWE
partnership and credit agreements and are unavailable for use by
the partners except through the payment of certain fees, reimbursements,
cash distributions and loans, which are subject to limitations.
At June 30, 1997 and December 31, 1996, the Time Warner General
<PAGE>
Partners had recorded $259 million and $93 million, respectively,
of stock option related distributions due from TWE, based on
closing prices of Time Warner common stock of $48.25 and $37.50,
respectively. Time Warner is paid when the options are exercised.
The Time Warner General Partners also receive tax-related
distributions from TWE on a current basis. During the six months ended
June 30, 1997, the Time Warner General Partners received distributions
from TWE in the amount of $203 million, consisting of $192 million of
tax-related distributions and $11 million of stock option related
distributions. During the six months ended June 30, 1996, the Time
Warner General Partners received distributions from TWE in the
amount of $132 million, consisting of $123 million of tax-related
distributions and $9 million of stock option related distributions.
In July 1997, the Time Warner General Partners received a $535
million distribution from TWE relating to its Senior Capital interest.
4. INVENTORIES
Inventories consist of:
June 30, 1997 December 31, 1996
Current Noncurrent Current Noncurrent
(millions)
Film costs:
Released, less amortization $ 81 $ 173 $209 $ 142
Completed and not released 13 4 54 -
In process and other - 250 24 251
Library, less amortization - 1,088 - 1,116
Programming costs, less amortization 256 242 213 189
Magazines, books and recorded music 394 - 441 -
Total $ 744 $1,757 $941 $1,698
5. LONG-TERM DEBT
During the first quarter of 1997, Time Warner entered into a
number of financing transactions, which resulted in the refinancing
of approximately $600 million of debt and the elimination of the
potential dilution from the conversion of TBS's zero coupon subordinated
convertible notes due 2007 (the "TBS Convertible Notes") into 5.6
million shares of Time Warner common stock. Time Warner redeemed $300
million principal amount of 10.75% Senior Notes due January 30, 2002
of TWI Cable Inc. ("TWI Cable"), its wholly owned subsidiary, and
approximately $283 million accreted amount of the TBS Convertible Notes
at an aggregate redemption price of approximately $600 million, including
redemption premiums and accrued interest thereon (collectively, the
"First Quarter Debt Redemptions"). In conjunction with the refinancing,
Old Time Warner issued $600 million principal amount of Floating Rate
Reset Notes due December 30, 2031 that are redeemable at the election of
the holders, in whole but not in part, on December 30, 2001 (the "Five-Year
Floating Rate Notes"). The Five-Year Floating Rate Notes bear interest at
a floating rate equal to LIBOR less 25 basis points until December 30,
2001, at which time, if not redeemed, the interest rate will be reset
at a fixed rate equal to 6.59% plus a margin based upon Old Time Warner's
credit risk at such time.
In July 1997, Old Time Warner issued $600 million principal
amount of Floating Rate Reset Notes due July 29, 2009 that are
redeemable at the election of the holders, in whole but not in part,
on July 29, 1999 (the "Two-Year Floating Rate Notes"). The net proceeds
therefrom will be used by Old Time Warner in the third quarter of 1997
to redeem or repay other indebtedness. The Two-Year Floating Rate Notes
bear interest at a floating rate equal
<PAGE>
to LIBOR less 115 basis points until July 29, 1999, at which time, if
not redeemed, the interest rate will be reset at a fixed rate equal to
6.16% plus a margin based upon Old Time Warner's credit risk at such time.
An extraordinary loss of $17 million was recognized by Time Warner
in the first quarter of 1997 in connection with the First Quarter Debt
Redemptions. An extraordinary loss of $9 million was recognized in the
second quarter of 1996 in connection with Time Warner's redemption of its
8.75% Debentures due 2017. An extraordinary loss of $26 million was
recognized in the first quarter of 1996 in connection with Time Warner's
redemption of its 8.75% Convertible Subordinated Debentures due 2015.
6. MANDATORILY REDEEMABLE PREFERRED SECURITIES
In August 1995, Time Warner issued approximately 12.1 million
Company-obligated mandatorily redeemable preferred securities of a
wholly owned subsidiary ("PERCS") for aggregate gross proceeds of
$374 million. The sole assets of the subsidiary that is the obligor
on the PERCS are $385 million principal amount of 4% subordinated
notes of Old Time Warner due December 23, 1997. Cumulative cash
distributions are payable on the PERCS at an annual rate of 4%.
The PERCS are mandatorily redeemable on December 23, 1997, for an
amount per PERCS equal to the lesser of $54.41 and the market value
of 1.5 shares of common stock of Hasbro, Inc. ("Hasbro") on December
17, 1997, payable in cash or, at Time Warner's option, Hasbro common
stock. Time Warner has the right to redeem the PERCS at any time prior
to December 23, 1997, at an amount per PERCS equal to $54.41 (or in certain
limited circumstances the lesser of such amount and the market value of
1.5 shares of Hasbro common stock at the time of redemption) plus
accrued and unpaid distributions thereon and a declining premium, payable
in cash or, at Time Warner's option, Hasbro common stock. Time Warner
owns approximately 18.1 million shares of Hasbro common stock, which
can be used by Time Warner, at its election, to satisfy its obligations
under the PERCS or its obligations under its zero coupon exchangeable
notes due 2012. Such zero coupon notes are exchangeable and redeemable
into an aggregate 18.1 million shares of Hasbro common stock.
In December 1995, Time Warner issued approximately 23 million
Company-obligated mandatorily redeemable preferred securities of a
wholly owned subsidiary ("Preferred Trust Securities") for aggregate
gross proceeds of $575 million. The sole assets of the subsidiary
that is the obligor on the Preferred Trust Securities are $592 million
principal amount of 8-7/8% subordinated debentures of Old Time Warner
due December 31, 2025. Cumulative cash distributions are payable
on the Preferred Trust Securities at an annual rate of 8-7/8%. The
Preferred Trust Securities are mandatorily redeemable for cash on
December 31, 2025, and Time Warner has the right to redeem the
Preferred Trust Securities, in whole or in part, on or after
December 31, 2000, or in other certain circumstances, in each case
at an amount per Preferred Trust Security equal to $25 plus accrued and
unpaid distributions thereon.
Time Warner has certain obligations relating to the PERCS and the
Preferred Trust Securities which amount to a full and unconditional
guaranty (on a subordinated basis) of each subsidiary's obligations
with respect thereto.
<PAGE>
7. SHAREHOLDERS' EQUITY
Changes in shareholders' equity are as follows:
Six Months
Ended June 30,
1997 1996
(millions)
Balance at beginning of year $9,502 $3,667
Net income (loss) 65 (159)
Common dividends declared (101) (70)
Preferred dividends declared (157) (104)
Repurchases of Time Warner common stock (36) (360)
Issuance of common stock in connection with the
TBS Transaction 67 -
Issuance of common stock and preferred stock in the CVI
acquisition - 680
Unrealized gains (losses) on certain marketable equity
investments (10) 61
Other, principally foreign currency translation and shares
issued pursuant to stock option and dividend reinvestment
plans 93 128
Balance at June 30 $9,423 $3,843
In April 1996, Time Warner's Board of Directors authorized a
program to repurchase, from time to time, up to 15 million shares of
Time Warner common stock. The common stock repurchased under the
program is expected to be used to satisfy future share issuances related
to the exercise of existing employee stock options. Actual repurchases
in any period will be subject to market conditions. As of June 30, 1997,
Time Warner had acquired approximately 12.4 million shares of its common
stock under this program for an aggregate cost of $492 million.
8. SEGMENT INFORMATION
Time Warner classifies its businesses into four fundamental
areas: Entertainment, consisting principally of interests in
recorded music and music publishing, filmed entertainment, television
production, television broadcasting and theme parks; Cable Networks,
consisting principally of interests in cable television programming and
sports franchises; Publishing, consisting principally of interests in
magazine publishing, book publishing and direct marketing; and Cable,
consisting principally of interests in cable television systems. A
majority of Time Warner's interests in filmed entertainment, television
production, television broadcasting and theme parks, a portion of its
interests in cable television programming and a majority of its cable
television systems are held by the Entertainment Group. The Entertainment
Group is not consolidated for financial reporting purposes.
Information as to the operations of Time Warner and the Entertainment
Group in different business segments is set forth below. The operating
results of Time Warner reflect the acquisitions of CVI effective as
of January 4, 1996 and TBS effective as of October 10, 1996.
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Revenues
Time Warner:
Publishing $1,053 $1,038 $1,977 $1,917
Music 822 876 1,755 1,859
Cable Networks-TBS 750 - 1,344 -
Filmed Entertainment-TBS 337 - 734 -
Cable 250 230 492 447
Intersegment elimination (19) (5) (75) (16)
Total $3,193 $2,139 $6,227 $4,207
Entertainment Group:
Filmed Entertainment-Warner Bros. $1,257 $1,272 $2,431 $2,490
Broadcasting-The WB Network 29 18 53 33
Cable Networks-HBO 487 456 970 875
Cable 1,066 961 2,086 1,908
Intersegment elimination (108) (97) (207) (209)
Total $2,731 $2,610 $5,333 $5,097
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Operating Income
Time Warner:
Publishing $ 149 $ 125 $ 216 $ 181
Music 32 70 82 125
Cable Networks-TBS 115 - 184 -
Filmed Entertainment-TBS 10 - (6) -
Cable 35 20 70 19
Intersegment elimination 4 - (7) -
Total $ 345 $ 215 $ 539 $325
Entertainment Group:
Filmed Entertainment-Warner Bros. $ 80 $ 79 $ 154 $152
Broadcasting-The WB Network (19) (12) (39) (36)
Cable Networks-HBO 98 83 189 159
Cable 168 147 351 293
Total $ 327 $ 297 $ 655 $568
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Depreciation of Property, Plant and Equipment
Time Warner:
Publishing $ 17 $ 17 $ 33 $ 32
Music 19 19 41 42
Cable Networks-TBS 21 - 42 -
Filmed Entertainment-TBS 2 - 3 -
Cable 31 33 62 66
Total $ 90 $ 69 $181 $140
Entertainment Group:
Filmed Entertainment-Warner Bros. $ 45 $ 33 $ 90 $ 65
Broadcasting-The WB Network 1 - 1 -
Cable Networks-HBO 5 4 10 9
Cable 176 157 348 300
Total $227 $194 $449 $374
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Amortization of Intangible Assets(1)
Time Warner:
Publishing $ 8 $ 14 $ 17 $ 23
Music 74 76 142 144
Cable Networks-TBS 50 - 95 -
Filmed Entertainment-TBS 19 - 41 -
Cable 69 65 139 145
Total $220 $155 $434 $312
Entertainment Group:
Filmed Entertainment-Warner Bros. $ 30 $ 29 $ 61 $ 60
Broadcasting-The WB Network - - - -
Cable Networks-HBO - - - -
Cable 75 72 151 151
Total $105 $101 $212 $211
(1) Amortization includes all amortization relating to the
acquisition of Warner Communications Inc. ("WCI") in 1989,
the acquisition of the minority interest in American
Television and Communications Corporation ("ATC") in 1992,
the acquisitions of KBLCOM Incorporated and Summit
Communications Group, Inc. in 1995, the acquisitions of TBS
and CVI in 1996 and other business combinations accounted
for by the purchase method.
<PAGE>
9. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to
litigation incidental to the businesses of Time Warner and
alleged damages in connection with class action lawsuits.
In the opinion of management, the ultimate resolution of these
matters will not have a material effect on the consolidated
financial statements of Time Warner.
10. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash
flows is as follows:
Six Months
Ended June 30,
1997 1996
(millions)
Interest expense $534 $471
Cash payments made for interest 488 426
Cash payments made for income taxes 166 169
Tax-related distributions received from TWE 192 123
Income tax refunds received 34 36
Noncash dividends 91 36
<PAGE>
<PAGE>
TIME WARNER INC.
SUPPLEMENTARY INFORMATION
SUMMARIZED FINANCIAL INFORMATION OF
TIME WARNER COMPANIES, INC. AND TURNER BROADCASTING SYSTEM, INC.
[Unaudited]
On October 10, 1996, Time Warner Inc. acquired the
remaining 80% interest in Turner Broadcasting System, Inc.
("TBS") that it did not already own, as more fully described
in Note 2 to the Time Warner Inc. consolidated financial
statements. As a result of this transaction, a new parent
company with the name "Time Warner Inc." replaced the old
parent company of the same name ("Old Time Warner", now
known as Time Warner Companies, Inc.) and Old Time Warner
and TBS became separate, wholly owned subsidiaries of the
new parent company ("New Time Warner"). New Time Warner has
fully and unconditionally guaranteed all of the outstanding
publicly traded indebtedness of each of Old Time Warner and TBS.
Set forth below is summarized financial information of
each of Old Time Warner and TBS presented for the
information of their respective debtholders. Summarized
financial information of Old Time Warner presented below
includes Old Time Warner's 20% interest in TBS under the
equity method of accounting. Summarized financial
information of TBS for all post-merger periods presented
below has been adjusted to reflect New Time Warner's basis
of accounting. Summarized financial information of TBS
presented below for all pre-merger periods is reflected at
TBS's historical cost basis of accounting. Certain
reclassifications have been made to TBS's summarized
financial information for all pre-merger periods to conform
to the post-merger presentation.
Old Time Warner
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Operating Statement Information
Revenues $2,108 $2,139 $4,194 $4,207
Depreciation and amortization 218 224 434 452
Business segment operating income 216 215 368 325
Equity in pretax income of Entertainment
Group 114 93 444 209
Interest and other, net 251 282 491 578
Income (loss) before extraordinary item 15 (31) 106 (124)
Net income (loss) (a) 15 (40) 93 (159)
June 30, December 31,
1997 1996
Balance Sheet Information (millions)
Total current assets $ 3,257 $ 3,529
Investments in and amounts due to and from
Entertainment Group 6,068 5,814
Total assets 26,076 25,595
Total current liabilities 2,645 2,831
Long-term debt 11,686 11,002
Total liabilities 18,977 18,532
Old Time Warner-obligated mandatorily redeemable
preferred securities of subsidiaries holding
solely subordinated notes and debentures of Old
Time Warner (b) 949 949
Series M exchangeable preferred stock 1,763 1,672
Shareholders' equity 4,387 4,442
_______________
(a) The net income for the six months ended June 30, 1997
includes an extraordinary loss on the retirement of debt of
$13 million. The net income for the three and six months
ended June 30, 1996 includes extraordinary losses on the
retirement of debt of $9 million and $35 million,
respectively.
(b) Includes $374 million of preferred securities that are
redeemable for cash or, at Old Time Warner's option,
approximately 18.1 million shares of Hasbro, Inc. common
stock owned by Old Time Warner.
<PAGE>
TBS
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Operating Statement Information
Revenues $1,079 $894 $2,033 $1,661
Depreciation and amortization 92 47 181 92
Business segment operating income 129 78 171 114
Interest and other, net 40 50 102 97
Income (loss) before extraordinary item 34 11 (2) 1
Net income (loss) (a) 34 11 (6) 1
June 30, December 31,
1997 1996
(millions)
Balance Sheet Information
Total current assets $ 1,177 $ 1,286
Total assets 11,057 11,092
Total current liabilities 948 934
Long-term debt 1,025 1,711
Debt due to New Time Warner 1,556 985
Total liabilities 3,960 3,989
Shareholders' equity 7,097 7,103
_______________
(a) The net loss for the six months ended June 30, 1997
includes an extraordinary loss on the retirement
of debt of $4 million.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE classifies its business interests into three
fundamental areas: Entertainment, consisting principally of
interests in filmed entertainment, television production,
television broadcasting and theme parks; Cable Networks,
consisting principally of interests in cable television
programming; and Cable, consisting principally of interests
in cable television systems. TWE also manages the cable
properties owned by Time Warner and the combined cable television
operations are conducted under the name of Time Warner Cable.
Capitalized terms are as defined and described in the accompanying
consolidated financial statements, or elsewhere herein.
Cable Strategy
Currently, Time Warner is no longer actively pursuing a
restructuring of TWE with U S WEST. However, Time Warner is
continuing to explore alternatives to reduce selectively its
economic interest in the cable television business and related
ancillary businesses in order to reduce existing debt and its
share of future funding requirements related to such operations.
These alternatives include sales or exchanges of non-strategic,
unclustered cable television systems and tax-efficient transfers
of cable television systems and related ancillary businesses to
joint ventures or other enterprises that would be responsible
for financing the operating and capital needs of such businesses.
These alternatives may be subject to third party, franchise and
regulatory approvals, including, in certain instances, approval by
U S WEST and/or the Advance/Newhouse Partnership ("Advance/Newhouse").
There can be no assurance that any of these efforts will succeed.
Consistent with this strategy of reducing existing debt
and its share of future funding requirements related to the
cable television business, TWE and Advance/Newhouse entered
into agreements in June 1997 to transfer the direct
broadcast satellite operations conducted by TWE and the
TWE-Advance/Newhouse Partnership (the "DBS Operations") and
the 31% partnership interest in Primestar Partners, L.P.
held by the TWE-Advance/Newhouse Partnership ("Primestar"
and collectively, the "Primestar Assets") to a new, publicly
traded holding company ("Newco") that will be the parent
entity of TCI Satellite Entertainment, Inc. ("TSAT"). Newco
will also own the DBS Operations and Primestar partnership
interests currently owned by TSAT and other existing
partners of Primestar. In exchange for contributing its
interests in the Primestar Assets, TWE will receive an
approximate 24% equity interest in Newco and realize
approximately $200 million of debt reduction, as well as
eliminating its share of future funding requirements for
these operations that will be separately financed by Newco.
In partial consideration for contributing its indirect
interest in certain of the Primestar Assets, Advance/Newhouse
will receive an approximate 6% equity interest in Newco.
In a related transaction, Primestar also entered into
an agreement in June 1997 with The News Corporation Limited,
MCI Telecommunications Corporation and American Sky
Broadcasting LLC ("ASkyB"), pursuant to which Primestar (or,
under certain circumstances, Newco) will acquire certain
assets relating to the high-power, direct broadcast
satellite business of ASkyB. In exchange for such assets,
ASkyB will receive non-voting securities of Newco that will
be convertible into non-voting common stock of Newco and,
accordingly, reduce TWE's equity interest in Newco to
approximately 16% on a fully diluted basis.
The Primestar transactions are not conditioned on each other
and may close independently. They are expected to close in 1998,
subject to customary closing conditions, including all necessary
governmental and regulatory approvals, including the approval of
the Federal Communications Commission (the "FCC"). There can be no
assurance that such approvals will be obtained.
<PAGE>
Use of EBITDA
The following comparative discussion of the results of
operations and financial condition of TWE includes, among
other factors, an analysis of changes in the operating
income of the business segments before depreciation and
amortization ("EBITDA") in order to eliminate the effect on
the operating performance of the filmed entertainment and
cable businesses of significant amounts of amortization of
intangible assets recognized in Time Warner's $14 billion
acquisition of WCI in 1989, the $1.3 billion acquisition of
the ATC minority interest in 1992 and other business
combinations accounted for by the purchase method. Financial
analysts generally consider EBITDA to be an important measure
of comparative operating performance for the businesses of
TWE, and, when used in comparison to debt levels or the
coverage of interest expense, as a measure of liquidity.
However, EBITDA should be considered in addition to, not as
a substitute for, operating income, net income, cash flow and
other measures of financial performance and liquidity reported
in accordance with generally accepted accounting principles.
RESULTS OF OPERATIONS
EBITDA and operating income for TWE for the three and six months
ended June 30, 1997 and 1996 are as follows:
Three Months Ended June 30, Six Months Ended June 30,
Operating Operating
EBITDA Income EBITDA Income
1997 1996 1997 1996 1997 1996 1997 1996
(millions)
Filmed Entertainment
-Warner Bros. $144 $140 $ 73 $ 79 $290 $271 $148 $149
Broadcasting-The
WB Network (18) (12) (19) (12) (38) (36) (39) (36)
Cable Networks-HBO 103 87 98 83 199 168 189 159
Cable 419 376 168 147 850 744 351 293
Total $648 $591 $320 $297 $1,301 $1,147 $649 $565
Three Months Ended June 30, 1997 Compared to the Three Months Ended
June 30, 1996
TWE had revenues of $2.728 billion and net income of
$82 million for the three months ended June 30, 1997, compared
to revenues of $2.608 billion and net income of $74 million
for the three months ended June 30, 1996. As discussed more
fully below, TWE's net income increased in 1997 as compared
to results in 1996 principally due to an overall increase
in operating income generated by its business segments.
As a U.S. partnership, TWE is not subject to U.S.
federal and state income taxation. Income and withholding
taxes of $25 million and $21 million for the three months
ended June 30, 1997 and 1996, respectively, have been
provided for the operations of TWE's domestic and foreign
subsidiary corporations.
Filmed Entertainment-Warner Bros. Revenues decreased
to $1.254 billion, compared to $1.270 billion in the second
quarter of 1996. EBITDA increased to $144 million from $140
million. Depreciation and amortization, including noncash
amortization of intangible assets related to the purchase of
WCI, amounted to $71 million in 1997 and $61 million in
1996. Operating income decreased to $73 million from $79
million. Revenues decreased principally as a result of lower
worldwide theatrical and home video revenues, offset in part
by significant increases in worldwide television
distribution revenues. EBITDA and operating income increased
principally as a result of the strong performance of
worldwide television distribution operations. Operating
income was further affected by higher depreciation and
amortization principally related to the expansion of theme
parks and consumer products operations.
<PAGE>
Broadcasting - The WB Network. Revenues increased to
$29 million, compared to $18 million in the second quarter
of 1996. EBITDA decreased to a loss of $18 million from a
loss of $12 million. Depreciation and amortization amounted
to $1 million in 1997. Operating losses increased to $19
million from $12 million. The increase in revenues primarily
resulted from the expansion of programming in September 1996
to three nights of primetime scheduling and the expansion of
Kids' WB!, the network's animated programming lineup on
Saturday mornings and weekdays. The 1997 operating loss
principally resulted from the expanded programming schedule
and was mitigated by the exercise of an option by a limited
partner in the first quarter of 1997 to increase its ownership
in this network. Due to the start-up nature of this national
broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $487 million,
compared to $456 million in the second quarter of 1996.
EBITDA increased to $103 million from $87 million.
Depreciation and amortization amounted to $5 million in 1997
and $4 million in 1996. Operating income increased to $98
million from $83 million. Revenues benefited primarily from
a significant increase in subscriptions. EBITDA and operating
income improved principally as a result of the revenue gains.
Cable. Revenues increased to $1.066 billion, compared
to $961 million in the second quarter of 1996. EBITDA
increased to $419 million from $376 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $251
million in 1997 and $229 million in 1996. Operating income
increased to $168 million from $147 million. Revenues
benefited from an increase in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an
increase in advertising and pay-per-view revenues. EBITDA
and operating income increased as a result of the revenue
gains. Operating income was further affected by higher
depreciation and amortization related to capital spending.
Interest and Other, Net. Interest and other, net, was
$139 million in the second quarter of 1997, compared to $132
million in the second quarter of 1996. Interest expense
increased to $120 million, compared to $117 million in 1996.
There was other expense, net, of $19 million in the second
quarter of 1997, compared to $15 million in the second
quarter of 1996, principally due to an increase in dividend
requirements on preferred stock of a subsidiary issued in
February 1997 to reduce bank debt. The preferred stock was
issued by a newly formed, substantially owned subsidiary
(the "REIT") intended to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended.
Six Months Ended June 30, 1997 Compared to the Six Months
Ended June 30, 1996
TWE had revenues of $5.328 billion and net income of
$402 million for the six months ended June 30, 1997,
compared to revenues of $5.093 billion and net income of
$168 million for the six months ended June 30, 1996. As
discussed more fully below, TWE's net income increased
significantly in 1997 as compared to results in 1996
principally due to an overall increase in operating income
generated by its business segments and the inclusion of an
approximately $250 million pretax gain on the first quarter
of 1997 sale of TWE's 58% interest in E! Entertainment
Television, Inc., offset in part by an increase in minority
interest expense related to the TWE-Advance/Newhouse Partnership.
As a U.S. partnership, TWE is not subject to U.S. federal
and state income taxation. Income and withholding taxes of
$37 million and $39 million for the six months ended June 30,
1997 and 1996, respectively, have been provided for the
operations of TWE's domestic and foreign subsidiary corporations.
<PAGE>
Filmed Entertainment-Warner Bros. Revenues decreased
to $2.426 billion, compared to $2.486 billion in the first
six months of 1996. EBITDA increased to $290 million from
$271 million. Depreciation and amortization, including
noncash amortization of intangible assets related to the
purchase of WCI, amounted to $142 million in 1997 and $122
million in 1996. Operating income decreased to $148 million
from $149 million. Revenues decreased principally as a
result of lower worldwide theatrical and home video
revenues, offset in part by significant increases in
worldwide television distribution revenues. EBITDA and
operating income increased principally as a result of the
strong performance of worldwide television distribution
operations and a gain on the sale of an investment.
Broadcasting - The WB Network. Revenues increased to
$53 million, compared to $33 million in the first six months
of 1996. EBITDA decreased to a loss of $38 million from a
loss of $36 million. Depreciation and amortization amounted
to $1 million in 1997. Operating losses increased to $39
million from $36 million. The increase in revenues primarily
resulted from the expansion of programming in September 1996
to three nights of primetime scheduling and the expansion of
Kids' WB!, the network's animated programming lineup on
Saturday mornings and weekdays. The 1997 operating loss
principally resulted from the expanded programming schedule
and was mitigated by the exercise of an option by a limited
partner in the first quarter of 1997 to increase its ownership
in this network. Due to the start-up nature of this national
broadcast operation, losses are expected to continue.
Cable Networks-HBO. Revenues increased to $970 million,
compared to $875 million in the first six months of 1996.
EBITDA increased to $199 million from $168 million.
Depreciation and amortization amounted to $10 million in
1997 and $9 million in 1996. Operating income increased to
$189 million from $159 million. Revenues benefited primarily
from a significant increase in subscriptions. EBITDA and operating
income improved principally as a result of the revenue gains.
Cable. Revenues increased to $2.086 billion, compared
to $1.908 billion in the first six months of 1996. EBITDA
increased to $850 million from $744 million. Depreciation
and amortization, including noncash amortization of
intangible assets related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $499
million in 1997 and $451 million in 1996. Operating income
increased to $351 million from $293 million. Revenues
benefited from an increase in basic cable and
Primestar-related, direct broadcast satellite subscribers,
increases in regulated cable rates as permitted under Time
Warner Cable's "social contract" with the FCC and an
increase in advertising and pay-per-view revenues. EBITDA
and operating income increased as a result of the revenue
gains, as well as net gains of approximately $24 million
recognized in the first quarter of 1997 in connection with
the sale or exchange of certain cable systems. Operating
income was further affected by higher depreciation and
amortization related to capital spending.
Interest and Other, Net. Interest and other, net, was
$10 million in the first six months of 1997, compared to
$221 million in the first six months of 1996. Interest
expense decreased to $235 million, compared to $239 million
in 1996. There was other income, net, of $225 million in the
first six months of 1997, compared to $18 million in the
first six months of 1996, principally due to higher gains on
asset sales, including an approximately $250 million pretax
gain on the sale of an interest in E! Entertainment
Television, Inc. recognized in the first quarter of 1997.
This income was offset in part by an increase in dividend
requirements on preferred stock of the REIT issued in
February 1997 to reduce bank debt.
<PAGE>
FINANCIAL CONDITION AND LIQUIDITY
June 30, 1997
Financial Condition
TWE had $5.8 billion of debt, $240 million of preferred
stock of a subsidiary, $1.6 billion of Time Warner General
Partners' Senior Capital and $6.5 billion of partners' capital
at June 30, 1997, compared to $5.7 billion of debt, $1.5 billion
of Time Warner General Partners' Senior Capital and $6.6 billion
of partners' capital at December 31, 1996. Cash and equivalents
were $293 million at June 30, 1997, compared to $216 million
at December 31, 1996, reducing the debt-net-of-cash amounts for
TWE to $5.5 billion in both periods.
Cash Flows
During the first six months of 1997, TWE's cash
provided by operations amounted to $416 million and
reflected $1.301 billion of EBITDA from the Filmed
Entertainment-Warner Bros., Broadcasting-The WB Network,
Cable Networks-HBO and Cable businesses, less $243 million
of interest payments, $35 million of income taxes, $36
million of corporate expenses, and $571 million related to
an increase in working capital requirements, other balance
sheet accounts and noncash items. Cash provided by
operations of $1.197 billion in the first six months of 1996
reflected $1.147 billion of business segment EBITDA and $364
million related to a reduction in working capital
requirements, other balance sheet accounts and noncash
items, less $247 million of interest payments, $32 million
of income taxes and $35 million of corporate expenses.
Cash used by investing activities was $425 million in
the first six months of 1997, compared to $650 million in
the first six months of 1996, principally as a result of a
$175 million increase in proceeds from the sale of
investments and lower capital expenditures. Capital
expenditures were $734 million in 1997 and $781 million in 1996.
Cash provided by financing activities was $86 million
in the first six months of 1997, compared to cash used by
financing activities of $538 million in the first six months
of 1996, principally as a result of a lower level of debt
reduction in the first six months of 1997 and the issuance
of 250,000 shares of preferred stock of a subsidiary for
aggregate net proceeds of $243 million, offset in part by
the absence of $169 million of collections on the note
receivable from U S WEST that was fully paid in 1996. The
preferred stock was issued by a newly formed, substantially
owned subsidiary intended to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended.
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to
fund its capital and liquidity needs for the foreseeable future.
Cable Capital Spending
Since the beginning of 1994, Time Warner Cable has been
engaged in a plan to upgrade the technological capability
and reliability of its cable television systems and develop
new services, which it believes will position the business
for sustained, long-term growth. Capital spending by TWE's
Cable division amounted to $662 million in the six months
ended June 30, 1997, compared to $610 million in the six
months ended June 30, 1996. For the full year of 1997, cable
capital spending is expected to be relatively comparable to
1996 levels, with approximately $750 million budgeted for
the remainder of 1997. Capital spending by TWE's Cable
division is expected to be funded by cable operating cash
flow. In exchange for certain flexibility in establishing
cable rate pricing structures for regulated
<PAGE>
services that went into effect on January 1, 1996 and
consistent with Time Warner Cable's long-term strategic
plan, Time Warner Cable has agreed with the FCC to invest a
total of $4 billion in capital costs in connection with the
upgrade of its cable infrastructure, which is expected to be
substantially completed over a five-year period ending
December 31, 2000. The agreement with the FCC covers all of
the cable operations of Time Warner Cable, including the
owned or managed cable television systems of TWE, the
TWE-Advance/Newhouse Partnership and Time Warner. Management
expects to continue to finance such level of investment
through the growth in cable operating cash flow derived from
increases in subscribers and cable rates, bank credit
agreement borrowings and the development of new revenue
streams from expanded programming options, high speed data
transmission and other services.
Warner Bros. Backlog
Warner Bros.' backlog, representing the amount of
future revenue not yet recorded from cash contracts for the
licensing of theatrical and television product for pay
cable, basic cable, network and syndicated television
exhibition, amounted to $1.839 billion at June 30, 1997,
compared to $1.502 billion at December 31, 1996 (including
amounts relating to TWE's cable television networks of $226
million and $189 million, respectively, and to Time Warner's
cable television networks of $489 million and $274 million,
respectively). Because backlog generally relates to
contracts for the licensing of theatrical and television
product which have already been produced, the recognition of
revenue for such completed product is principally only
dependent upon the commencement of the availability period
for telecast under the terms of the related licensing
agreement. Cash licensing fees are collected periodically
over the term of the related licensing agreements. Accordingly,
the portion of backlog for which cash advances have not already
been received has significant off-balance sheet asset value as
a source of future funding. The backlog excludes advertising
barter contracts, which are also expected to result in the future
realization of revenues and cash through the sale of advertising
spots received under such contracts.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, December 31,
1997 1996
(millions)
ASSETS
Current assets
Cash and equivalents $ 293 $ 216
Receivables, including $341 and $383 million
due from Time Warner, less allowances of $378
and $373 million 1,717 1,637
Inventories 1,367 1,134
Prepaid expenses 182 159
Total current assets 3,559 3,146
Noncurrent inventories 2,126 2,263
Loan receivable from Time Warner 400 400
Investments 367 351
Property, plant and equipment, net 6,266 5,999
Cable television franchises 2,977 3,054
Goodwill 3,936 3,996
Other assets 579 764
Total assets $20,210 $19,973
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable $ 710 $ 935
Participations and programming costs payable 1,346 1,393
Debt due within one year 7 7
Other current liabilities, including $85 million and
$82 million due to Time Warner 1,568 1,740
Total current liabilities 3,631 4,075
Long-term debt 5,781 5,676
Other long-term liabilities, including $307 and
$138 million due to Time Warner 1,285 1,085
Minority interests 1,137 1,020
Preferred stock of subsidiary holding solely a
mortgage note of its parent 240 -
Time Warner General Partners' Senior Capital 1,605 1,543
Partners' capital
Contributed capital 7,537 7,537
Undistributed partnership earnings (deficit) (1,006) (963)
Total partners' capital 6,531 6,574
Total liabilities and partners' capital $20,210 $19,973
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Revenues (a) $2,728 $2,608 $5,328 $5,093
Cost of revenues (a)(b) 1,782 1,730 3,447 3,395
Selling, general and administrative (a)(b) 626 581 1,232 1,133
Operating expenses 2,408 2,311 4,679 4,528
Business segment operating income 320 297 649 565
Interest and other, net (a) (139) (132) (10) (221)
Minority interest (56) (52) (164) (102)
Corporate services (a) (18) (18) (36) (35)
Income before income taxes 107 95 439 207
Income taxes (25) (21) (37) (39)
Net income $ 82 $ 74 $ 402 $ 168
_______________
(a) Includes the following income (expenses) resulting from
transactions with the partners of TWE and other related
companies for the three and six months ended June 30, 1997,
respectively, and for the corresponding periods in the
prior year: revenues-$55 million and $121 million in 1997,
$76 million and $99 million in 1996; cost of revenues-$(26)
million and $(36) million in 1997, $(14) million and $(38)
million in 1996; selling, general and administrative-$21
million and $40 million in 1997, $(7) million
and $(9) million in 1996; interest and other, net-$5
million and $17 million in 1997, $7 million and $16 million
in 1996; and corporate services-$(18) million and $(36)
million in 1997, $(18) million and $(35) million in 1996.
(b) Includes depreciation and amortization
expense of: $328 $294 $652 $ 582
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Six Months
Ended June 30,
1997 1996
(millions)
OPERATIONS
Net income $ 402 $ 168
Adjustments for noncash and nonoperating items:
Depreciation and amortization 652 582
Changes in operating assets and liabilities (638) 447
Cash provided by operations 416 1,197
INVESTING ACTIVITIES
Investments and acquisitions (62) (65)
Capital expenditures (734) (781)
Investment proceeds 371 196
Cash used by investing activities (425) (650)
FINANCING ACTIVITIES
Borrowings 428 63
Debt repayments (323) (670)
Issuance of preferred stock of subsidiary 243 -
Capital distributions (203) (132)
Collections on note receivable from U S WEST - 169
Other (59) 32
Cash provided (used) by financing activities 86 (538)
INCREASE IN CASH AND EQUIVALENTS 77 9
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 216 209
CASH AND EQUIVALENTS AT END OF PERIOD $293 $218
See accompanying notes.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Time Warner Entertainment Company, L.P., a Delaware
limited partnership ("TWE"), classifies its businesses into
three fundamental areas: Entertainment, consisting
principally of interests in filmed entertainment, television
production, television broadcasting and theme parks; Cable
Networks, consisting principally of interests in cable
television programming; and Cable, consisting principally of
interests in cable television systems.
Each of the business interests within Entertainment,
Cable Networks and Cable is important to TWE's objective of
increasing partner value through the creation, extension and
distribution of recognizable brands and copyrights
throughout the world. Such brands and copyrights include (1)
the unique and extensive film, television and animation
libraries of Warner Bros. and trademarks such as the Looney
Tunes characters and Batman, (2) The WB Network, a national
broadcasting network launched in 1995 as an extension of the
Warner Bros. brand and as an additional distribution outlet
for Warner Bros.' collection of children's cartoons and
television programming, (3) Six Flags, the largest regional
theme park operator in the United States, in which TWE owns
a 49% interest, (4) HBO and Cinemax, the leading pay
television services and (5) Time Warner Cable, the second
largest operator of cable television systems in the U.S.
The operating results of TWE's various business
interests are presented herein as an indication of financial
performance (Note 7). Except for start-up losses incurred in
connection with The WB Network, TWE's principal business
interests generate significant operating income and cash
flow from operations. The cash flow from operations
generated by such business interests is considerably greater
than their operating income due to significant amounts of
noncash amortization of intangible assets recognized
principally in Time Warner Companies, Inc.'s ("Time
Warner")* $14 billion acquisition of Warner Communications
Inc. ("WCI") in 1989 and $1.3 billion acquisition of the
minority interest in American Television and Communications
Corporation ("ATC") in 1992, a portion of which cost was
allocated to TWE upon the capitalization of the partnership.
Noncash amortization of intangible assets recorded by TWE's
businesses amounted to $105 million and $101 million in the
three months ended June 30, 1997 and 1996, respectively, and
$212 million and $211 million for the six months ended June
30, 1997 and 1996, respectively.
Time Warner and certain of its wholly owned
subsidiaries collectively own general and limited
partnership interests in TWE consisting of 74.49% of the pro
rata priority capital ("Series A Capital") and residual
equity capital ("Residual Capital"), and 100% of the senior
priority capital ("Senior Capital") and junior priority
capital ("Series B Capital"). The remaining 25.51% limited
partnership interests in the Series A Capital and Residual
Capital of TWE are held by a subsidiary of U S WEST, Inc.
("U S WEST"). Certain of Time Warner's subsidiaries are the
general partners of TWE ("Time Warner General Partners").
(*) On October 10, 1996, Time Warner Inc. acquired the
remaining 80% interest in Turner Broadcasting System, Inc.
("TBS") that it did not already own. As a result of this
transaction, a new parent company with the name "Time Warner
Inc." replaced the old parent company of the same name ("Old
Time Warner", now known as Time Warner Companies, Inc.), and
Old Time Warner and TBS became separate, wholly owned
subsidiaries of the new parent company. Unless the context
indicates otherwise, references herein to "Time Warner"
refer to Old Time Warner.
<PAGE>
Basis of Presentation
The accompanying financial statements are unaudited
but, in the opinion of management, contain all the
adjustments (consisting of those of a normal recurring
nature) considered necessary to present fairly the financial
position and the results of operations and cash flows for
the periods presented in conformity with generally accepted
accounting principles applicable to interim periods. The
accompanying financial statements should be read in
conjunction with the audited consolidated financial
statements of TWE for the year ended December 31, 1996.
Certain reclassifications have been made to the prior year's
financial statements to conform to the 1997 presentation.
2. INVENTORIES
TWE's inventories consist of:
June 30, 1997 December 31, 1996
Current Noncurrent Current Noncurrent
(millions)
Film costs:
Released, less amortization $ 544 $ 592 $ 544 $ 535
Completed and not released 412 98 168 42
In process and other 54 489 21 704
Library, less amortization - 638 - 664
Programming costs, less amortization 276 309 319 318
Merchandise 81 - 82 -
Total $1,367 $2,126 $1,134 $2,263
3. INVESTMENTS
In the first quarter of 1997, TWE sold its 58% interest
in E! Entertainment Television, Inc. A pretax gain of
approximately $250 million relating to this sale has been
included in the accompanying consolidated statement of operations.
4. PRIMESTAR PARTNERS
In June 1997, TWE and the Advance/Newhouse Partnership
("Advance/Newhouse") entered into agreements to transfer the
direct broadcast satellite operations conducted by TWE and
the TWE-Advance/Newhouse Partnership (the "DBS Operations")
and the 31% partnership interest in Primestar Partners, L.P.
held by the TWE-Advance/Newhouse Partnership ("Primestar"
and collectively, the "Primestar Assets") to a new, publicly
traded holding company ("Newco") that will be the parent
entity of TCI Satellite Entertainment, Inc. ("TSAT"). Newco
will also own the DBS Operations and Primestar partnership
interests currently owned by TSAT and other existing
partners of Primestar. In exchange for contributing its
interests in the Primestar Assets, TWE will receive an
approximate 24% equity interest in Newco and realize
approximately $200 million of debt reduction. In partial
consideration for contributing its indirect interest in
certain of the Primestar Assets, Advance/Newhouse will
receive an approximate 6% equity interest in Newco.
In June 1997, Primestar also entered into an agreement with
The News Corporation Limited, MCI Telecommunications Corporation
("MCI") and American Sky Broadcasting LLC ("ASkyB"), pursuant to
which Primestar (or, under certain circumstances, Newco) will
acquire certain assets relating to the high-power, direct broadcast
satellite business of ASkyB. In exchange for such assets, ASkyB
will receive non-voting securities of
<PAGE>
Newco that will be convertible into non-voting common stock
of Newco and, accordingly, reduce TWE's equity interest in
Newco to approximately 16% on a fully diluted basis.
These transactions are not conditioned on each other
and may close independently. They are expected to close in
1998, subject to customary closing conditions, including all
necessary governmental and regulatory approvals, including
the approval of the Federal Communications Commission. There
can be no assurance that such approvals will be obtained.
5. PREFERRED STOCK OF SUBSIDIARY
In February 1997, a newly formed, substantially owned
subsidiary of TWE (the "REIT") issued 250,000 shares of
step-down preferred stock ("Step-Down Preferred Stock"). The
REIT is intended to qualify as a real estate investment
trust under the Internal Revenue Code of 1986, as amended.
TWE used the aggregate net proceeds from the transaction of
$243 million to reduce its bank debt. The sole asset of the
REIT is a $432 million mortgage note payable of TWE, which has
been secured by certain real estate owned by TWE or its affiliates.
Each share of Step-Down Preferred Stock is entitled to
a liquidation preference of $1,000 and entitles the holder
thereof to receive cumulative cash dividends, payable
quarterly, at the rate of 14.253% per annum through December
30, 2006 and 1% per annum thereafter, which results in an
effective dividend yield of 8.48%. Shares of Step-Down
Preferred Stock are redeemable only in the event of certain
changes or proposed changes to the tax laws or regulations,
such that dividends paid by the REIT or interest paid under
the mortgage note would not be fully deductible for federal
income tax purposes. Time Warner has the right to liquidate
or dissolve the REIT at any time after December 30, 2006 or,
at any time prior thereto, upon the approval of the holders
of at least two-thirds of the outstanding shares of
Step-Down Preferred Stock.
6. PARTNERS' CAPITAL
Changes in partners' capital were as follows:
Six Months
Ended June 30,
1997 1996
(millions)
Balance at beginning of year $6,574 $6,478
Net income 402 168
Distributions (369) (147)
Allocation of income to Time Warner General Partners'
Senior Capital (62) (57)
Collections on note receivable from U S WEST - 169
Capital contributions - 15
Other (14) 10
Balance at June 30 $6,531 $6,636
TWE is required to make distributions to reimburse the
partners for income taxes at statutory rates based on their
allocable share of taxable income, and to reimburse Time
Warner for its stock options granted to employees of TWE
based on the amount by which the market price of Time Warner
common stock exceeds the option exercise price on the
exercise date or, with respect to options granted prior to
the TWE capitalization on September 30, 1992, the greater of
the exercise price and the $27.75 market price of Time
Warner common stock at the time of the TWE capitalization.
TWE accrues a stock option distribution and a corresponding
liability with respect to unexercised options when the
market price of Time Warner common stock increases during
the accounting period, and reverses
<PAGE>
previously-accrued stock option distributions and the
corresponding liability when the market price of Time Warner
common stock declines.
During the six months ended June 30, 1997, TWE accrued
$192 million of tax-related distributions and $177 million
of stock option distributions, based on closing prices of
Time Warner common stock of $48.25 at June 30, 1997 and
$37.50 at December 31, 1996. During the six months ended
June 30, 1996, TWE accrued $123 million of tax-related
distributions and $24 million of stock option distributions
as a result of an increase at that time in the market price
of Time Warner common stock. In the six months ended June
30, 1997, TWE paid distributions to the Time Warner General
Partners in the amount of $203 million, consisting of $192
million of tax-related distributions and $11 million of
stock option related distributions. In the six months ended
June 30, 1996, TWE paid the Time Warner General Partners
distributions in the amount of $132 million, consisting of
$123 million of tax-related distributions and $9 million of
stock option related distributions. In July 1997, TWE made a
$535 million distribution to the Time Warner General
Partners relating to their Senior Capital interests.
7. SEGMENT INFORMATION
TWE classifies its businesses into three fundamental
areas: Entertainment, consisting principally of interests in
filmed entertainment, television production, television
broadcasting and theme parks; Cable Networks, consisting
principally of interests in cable television programming;
and Cable, consisting principally of interests in cable
television systems.
Information as to the operations of TWE in different
business segments is set forth below.
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Revenues
Filmed Entertainment-Warner Bros. $1,254 $1,270 $2,426 $2,486
Broadcasting-The WB Network 29 18 53 33
Cable Networks-HBO 487 456 970 875
Cable 1,066 961 2,086 1,908
Intersegment elimination (108) (97) (207) (209)
Total $2,728 $2,608 $5,328 $5,093
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Operating Income
Filmed Entertainment-Warner Bros. $ 73 $ 79 $ 148 $ 149
Broadcasting-The WB Network (19) (12) (39) (36)
Cable Networks-HBO 98 83 189 159
Cable 168 147 351 293
Total $ 320 $ 297 $ 649 $ 565
<PAGE>
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Depreciation of Property, Plant and Equipment
Filmed Entertainment-Warner Bros. $ 41 $ 32 $ 81 $ 62
Broadcasting-The WB Network 1 - 1 -
Cable Networks-HBO 5 4 10 9
Cable 176 157 348 300
Total $223 $193 $440 $371
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
(millions)
Amortization of Intangible Assets (1)
Filmed Entertainment-Warner Bros. $ 30 $ 29 $ 61 $ 60
Broadcasting-The WB Network - - - -
Cable Networks-HBO - - - -
Cable 75 72 151 151
Total $105 $101 $212 $211
(1) Amortization includes amortization relating to the
acquisitions of WCI in 1989 and the ATC minority
interest in 1992 and to other business combinations
accounted for by the purchase method.
8. COMMITMENTS AND CONTINGENCIES
Pending legal proceedings are substantially limited to
litigation incidental to the businesses of TWE. In the opinion of
management, the ultimate resolution of these matters will not have
a material effect on the consolidated financial statements of TWE.
9. ADDITIONAL FINANCIAL INFORMATION
Additional financial information with respect to cash
flows is as follows:
Six Months
Ended June 30,
1997 1996
(millions)
Interest expense $235 $239
Cash payments made for interest 243 247
Cash payments made for income taxes, net 35 32
Noncash capital distributions 177 24
<PAGE>
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings.
Reference is made to the litigation entitled Fox News Network,
L.L.C. v. Time Warner Inc. et al. described on pages I-39 and I-40
of Time Warner's Annual Report on Form 10-K for the year ended
December 31, 1996 (the "1996 Form 10-K"). On May 15, 1997, defendants'
motion for summary judgment as to plaintiff's fraud and promissory
estoppel claims was granted, and the remaining antitrust claims were
transferred on the court's own motion to the Southern District of New
York. On July 22, 1997, the parties executed a settlement agreement
resolving all claims against defendants not previously dismissed.
Reference is made to the action commenced by the holders of
Time Warner's New York City cable franchises against the City of New
York described on page I-40 of the 1996 Form 10-K. On July 3, 1997,
the United States Court of Appeals for the Second Circuit affirmed the
lower court's grant of a preliminary injunction to the Time Warner
plaintiffs. On July 22, 1997, the parties executed a settlement
agreement that resolved Time Warner's claims for injunctive relief.
Reference is made to the consolidated actions filed in Superior
Court, Fulton County, Georgia, against TBS, Time Warner, certain
officers and directors of TBS or TWE, and other defendants, in
connection with the TBS Transaction, described on pages I-38 and
I-39 of the 1996 Form 10-K. On July 14, 1997 defendants' motion
for summary judgment on plaintiffs' fourth amended complaint and
defendants' motion for final judgment on plaintiffs' third amended
complaint were both granted.
Reference is made to the litigation entitled Digital Distribution
Inc. d/b/a Compact Disc Warehouse v. CEMA Distribution, Sony Music
Entertainment, Inc., Warner Elektra Atlantic Corporation, UNI
Distribution Corporation, Bertelsmann Music Group, Inc. and PolyGram
Group Distribution, Inc. described on pages I-37 and I-38 of the
1996 Form 10-K. On July 3, 1997, the United States Court of Appeals
for the Ninth Circuit reversed the dismissal of the Amended Complaint
and remanded the case to the District Court, holding that the Amended
Complaint was sufficient to meet the pleading requirements of the
Federal Rules and that the action should proceed.
Reference is made to the litigation entitled Robinson & Silvey
v. EMI Music Distribution, Inc., Sony Music Entertainment, Inc.,
Warner Elektra Atlantic Corporation, UNI Distribution Corporation,
Bertelsmann Music Group, Inc. and PolyGram Group Distribution, Inc.
described on page I-39 of the 1996 Form 10-K. On August 1, 1997,
the Circuit Court issued an Order vacating and setting aside the
conditional class certification, granting the plaintiffs' motion to
dismiss, and dismissing the entire action, without prejudice.
Item 2. Changes in Securities.
(a) On May 19, 1997, Time Warner's Restated Certificate of
Incorporation was amended to provide for the annual election of the
entire Board of Directors thereby eliminating, effective at the next
annual meeting of stockholders, the division of the Board of Directors
into three classes with one class elected each year for a three-year term.
(b) Not applicable.
<PAGE>
(c) Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The Annual Meeting of Stockholders of Time Warner was held
on May 15, 1997 (the "1997 Annual Meeting").
(b) (i) The following were elected directors of Time Warner at
the 1997 Annual Meeting:
J. Carter Bacot
Stephen F. Bollenbach
Gerald Greenwald
Gerald M. Levin
Richard D. Parsons
(ii) The following continue as directors of Time Warner:
Merv Adelson
Beverly Sills Greenough
Carla A. Hills
Reuben Mark
Michael A. Miles
Donald S. Perkins
Raymond S. Troubh
R. E. Turner
Francis T. Vincent, Jr.
(c) The following matters were voted upon at the 1997
Annual Meeting:
(i) Election of directors for terms expiring in 1998:
Broker
For Withheld Non-Votes
J. Carter Bacot 509,667,981 5,159,246 0
Stephen F. Bollenbach 507,109,522 7,717,705 0
Gerald Greenwald 507,214,675 7,612,552 0
Gerald M. Levin 509,062,337 5,764,890 0
Richard D. Parsons 509,349,911 5,477,316 0
(ii) Approval of an amendment to Time Warner's Restated
Certificate of Incorporation to provide for the annual election of directors:
Broker
Votes For Votes Against Abstentions Non-Votes
466,853,385 3,907,235 1,433,098 42,903,508
<PAGE>
(iii) Approval of the Time Warner 1997 Stock Option Plan:
Broker
Votes For Votes Against Abstentions Non-Votes
475,952,439 36,403,986 1,964,381 0
(iv) Approval of the appointment of Ernst & Young LLP as
independent auditors of Time Warner for 1997:
Broker
Votes For Votes Against Abstentions Non-Votes
512,119,374 1,181,949 1,019,483 0
(v) Stockholder resolution relating to the use of
chlorine-free paper:
Broker
Votes For Votes Against Abstentions Non-Votes
20,287,077 428,567,271 22,562,950 42,903,508
(d) Not applicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
The exhibits listed on the accompanying Exhibit Index are filed or
incorporated by reference as a part of this report and such Exhibit
Index is incorporated herein by reference.
(b) Reports on Form 8-K.
No Current Report on Form 8-K was filed by Time Warner during the
quarter ended June 30, 1997.
<PAGE>
<PAGE>
TIME WARNER INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
Time Warner Inc.
(Registrant)
By: /s/ Richard J. Bressler
Name: Richard J. Bressler
Title: Senior Vice President and
Chief Financial Officer
Dated: August 8, 1997
<PAGE>
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulations S-K
Exhibit No. Description of Exhibit
3.(i)(a) Restated Certificate of Incorporation of the
Registrant as filed with the Secretary of State of the State
of Delaware on October 10, 1996 (which is incorporated
herein by reference to Exhibit 4.3 to the Registrant's
Post-Effective Amendment No. 1 on Form S-8 to the
Registrant's Registration Statement on Form S-4
(Registration No. 333-11471) (the "S-8 Registration
Statement")).
3.(i)(b) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant as filed with the
Secretary of State of the State of Delaware on October
10, 1996 (which is incorporated herein by reference to
Exhibit 4.4 to the Registrant's S-8 Registration Statement).
3.(i)(c) Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant as filed with the Secretary
of State of the State of Delaware on May 19, 1997.
3.(i)(d) Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series LMC Common
Stock of the Registrant as filed with the Secretary of State
of the State of Delaware on October 10, 1996 (which is
incorporated herein by reference to Exhibit 4.5 to the
Registrant's S-8 Registration Statement).
3.(i)(e) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series LMCN-V Common
Stock of the Registrant as filed with the Secretary of State
of the State of Delaware on October 10, 1996 (which is
incorporated herein by reference to Exhibit 4.6 to the
Registrant's S-8 Registration Statement).
3.(i)(f) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series A
Participating Cumulative Preferred Stock of the Registrant
as filed with the Secretary of State of the State of
Delaware on October 10, 1996 (which is incorporated herein
<PAGE>
by reference to Exhibit 4.7 to the Registrant's S-8
Registration Statement).
3.(i)(g) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series D Convertible
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit
4.8 to the Registrant's S-8 Registration Statement).
3.(i)(h) Certificate of the Voting Powers, Designations, Preferences
and Relative, Participating, Optional or
Other Special Rights, and Qualifications, Limitations or
Restrictions Thereof, of Series E Convertible Preferred
Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on October 10, 1996 (which
is incorporated herein by reference to Exhibit 4.9 to the
Registrant's S-8 Registration Statement).
3.(i)(i) Certificate of Correction of the Certificate of the Voting
Powers, Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series E Convertible
Preferred Stock of the Registrant as filed with the Secretary
of State of the State of Delaware on November 13, 1996
(which is incorporated by reference to Exhibit 3.(i)(h) to
the Registrant's 1996 Form 10-K).
3.(i)(j) Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series F Convertible
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit
4.10 to the Registrant's S-8 Registration Statement).
3.(i)(k) Certificate of Correction of the Certificate of the
Voting Powers, Designations, Preferences and Relative,
Participating, Optional or Other Special Rights, and
Qualifications, Limitations or Restrictions Thererof,
of Series F Convertible Preferred Stock of the
Registrant as filed with the Secretary of State of the State
of Delaware on November 13, 1996 (which is incorporated
herein by reference to Exhibit 3.(i)(j) to the Registrant's
1996 Form 10-K).
3.(i)(l) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of
<PAGE>
Series G Convertible Preferred Stock of the Registrant as
filed with the Secretary of State of the State of Delaware
on October 10, 1996 (which is incorporated herein by
reference to Exhibit 4.11 to the Registrant's S-8
Registration Statement).
3.(i)(m) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series H Convertible
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit
4.12 to the Registrant's S-8 Registration Statement).
3.(i)(n) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series I Convertible
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit
4.13 to the Registrant's S-8 Registration Statement).
3.(i)(o) Certificate of the Voting Powers,
Designations, Preferences and Relative, Participating,
Optional or Other Special Rights, and Qualifications,
Limitations or Restrictions Thereof, of Series J Convertible
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October 10,
1996 (which is incorporated herein by reference to Exhibit
4.14 to the Registrant's S-8 Registration Statement).
3.(i)(p) Certificate of the Voting Powers, Designations,
Preferences and Relative, Participating, Optional or
Other Special Rights, and Qualifications, Limitations
or Restrictions Thereof, of 10-1/4% Series M Exchangeable
Preferred Stock of the Registrant as filed with the
Secretary of State of the State of Delaware on October
10, 1996 (which is incorporated herein by reference to
Exhibit 4.15 to the Registrant's S-8 Registration
Statement).
3.(ii) By-laws of the Registrant as of May 22, 1997.
10.1 Employment Agreement effective as of May 1,
1997 between the Registrant and John A. LaBarca.
10.2 Time Warner 1997 Stock Option Plan (which
is incorporated by reference to Annex A to the Registrant's
definitive Proxy Statement dated March 28, 1997 used in
connection with the Registrant's 1997 Annual Meeting
of Stockholders).
27 Financial Data Schedule.
<PAGE>
Exhibit 3.(i)(c)
CERTIFICATE OF AMENDMENT TO
RESTATED CERTIFICATE OF INCORPORATION
Time Warner Inc., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), Does Hereby Certify that:
A. The Restated Certificate of Incorporation of the Corporation, as
heretofore amended, is hereby further amended as follows:
Article VI is hereby amended as follows:
1. Section 1 is hereby amended to read in its entirety as
follows:
"Section 1. Except as otherwise fixed by or pursuant to the
provisions of Article IV of this Certificate of Incorporation relating
to the rights of the holders of any series of Preferred Stock or Series
Common Stock or any class or series of stock having a preference over
the Common Stock as to dividends or upon liquidation, the number of the
directors of the Corporation shall be fixed from time to time by or
pursuant to the By-laws of the Corporation. The directors, other than
those who may be elected by the holders of any series of Preferred Stock
or Series Common Stock or any class or series of stock having a
preference over the Common Stock as to dividends or upon liquidation
pursuant to the terms of this Certificate of Incorporation or any
resolution or resolutions providing for the issue of such class or
series of stock adopted by the Board of Directors, shall be elected by
the stockholders entitled to vote thereon at each annual meeting of
stockholders and shall hold office until the next annual meeting of
stockholders and until each of their successors shall have been elected
and qualified. The term of office of each director in office at the
time this Section 1 of Article VI becomes effective shall expire at the
next annual meeting of stockholders held after the time this Section 1
of Article VI becomes effective. The election of directors need not be
by written ballot. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent
director."
2. Section 3 is hereby amended to read in its entirety as
follows:
"Section 3. Except as otherwise provided for or fixed by or
pursuant to the provisions of Article IV of this Certificate of
Incorporation relating to the rights of the holders of any series of
Preferred Stock or Series Common Stock or any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation, newly created directorships resulting from any increase in
the number of directors may be filled by the Board of Directors, or as
otherwise provided in the By-laws, and any vacancies on the Board of
Directors resulting from death, resignation, removal or other cause
shall only be filled by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of
the Board of Directors, or by a sole remaining director, or as otherwise
provided in the By-laws. Any director elected in accordance with the
preceding sentence of this Section 3 shall hold office until the next
annual meeting of stockholders and until such director's successor shall
have been elected and qualified."
3. Section 4 is hereby deleted in its entirety.
B. The foregoing amendments were duly adopted in accordance with
Section 242 of the General Corporation Law of the State of Delaware.
In Witness Whereof, Time Warner Inc. has caused this certificate to be
signed as of this 19th day of May, 1997.
Time Warner Inc.
By: /s/Thomas W. McEnerney
Thomas W. McEnerney
Vice President
Exhibit 3.(ii)
BY-LAWS
OF
TIME WARNER INC.
Incorporated under the Laws of the State of Delaware
Effective May 22, 1997
<PAGE>
TABLE OF CONTENTS
Page
ARTICLE I: Offices 1
Registered Office . . . . . . . . . . . . . . . . . . . . 1
Other Offices . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: Meetings of Stockholders 1
Place of Meeting. . . . . . . . . . . . . . . . . . . . . 1
Annual Meetings . . . . . . . . . . . . . . . . . . . . . 1
Special Meetings. . . . . . . . . . . . . . . . . . . . . 2
Notice of Meetings. . . . . . . . . . . . . . . . . . . . 2
Quorum. . . . . . . . . . . . . . . . . . . . . . . . . . 2
Adjournments. . . . . . . . . . . . . . . . . . . . . . . 3
Order of Business . . . . . . . . . . . . . . . . . . . . 3
List of Stockholders. . . . . . . . . . . . . . . . . . . 5
Voting. . . . . . . . . . . . . . . . . . . . . . . . . . 5
Inspectors. . . . . . . . . . . . . . . . . . . . . . . . 6
Public Announcements. . . . . . . . . . . . . . . . . . . 6
ARTICLE III: Board of Directors 7
General Powers. . . . . . . . . . . . . . . . . . . . . . 7
Number, Qualification and Election. . . . . . . . . . . . 7
Notification of Nominations . . . . . . . . . . . . . . . 8
Quorum and Manner of Acting . . . . . . . . . . . . . . . 9
Place of Meeting. . . . . . . . . . . . . . . . . . . . . 10
Regular Meetings. . . . . . . . . . . . . . . . . . . . . 10
Special Meetings. . . . . . . . . . . . . . . . . . . . . 10
Notice of Meetings. . . . . . . . . . . . . . . . . . . . 10
Rules and Regulations . . . . . . . . . . . . . . . . . . 11
Participation in Meeting by Means of
Communications Equipment . . . . . . . . . . . . . . 11
Action without Meeting. . . . . . . . . . . . . . . . . . 11
Resignations. . . . . . . . . . . . . . . . . . . . . . . 11
Removal of Directors. . . . . . . . . . . . . . . . . . . 11
Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 11
Compensation. . . . . . . . . . . . . . . . . . . . . . . 12
Independent Directors . . . . . . . . . . . . . . . . . . 12
<PAGE>
ARTICLE IV: Committees of the Board of Directors 13
Establishment of Committees of the Board of
Directors; Election of Members of Committees
of the Board of Directors; Functions of
Committees of the Board of Directors . . . . . . . . 13
Procedure; Meetings; Quorum . . . . . . . . . . . . . . . 13
ARTICLE V: Officers 14
Number; Term of Office. . . . . . . . . . . . . . . . . . 14
Removal . . . . . . . . . . . . . . . . . . . . . . . . . 15
Resignation . . . . . . . . . . . . . . . . . . . . . . . 15
Vacancies . . . . . . . . . . . . . . . . . . . . . . . . 16
Chairman of the Board . . . . . . . . . . . . . . . . . . 16
Chief Executive Officer . . . . . . . . . . . . . . . . . 16
The President . . . . . . . . . . . . . . . . . . . . . . 16
Chief Operating Officer . . . . . . . . . . . . . . . . . 17
Vice-Chairman of the Board. . . . . . . . . . . . . . . . 17
Chairman of the Executive Committee . . . . . . . . . . . 17
Chief Financial Officer . . . . . . . . . . . . . . . . . 17
Vice-Presidents . . . . . . . . . . . . . . . . . . . . . 18
Treasurer . . . . . . . . . . . . . . . . . . . . . . . . 18
Controller. . . . . . . . . . . . . . . . . . . . . . . . 18
Secretary . . . . . . . . . . . . . . . . . . . . . . . . 18
Assistant Treasurers and Assistant
Secretaries. . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VI: Indemnification 19
Right to Indemnification. . . . . . . . . . . . . . . . . 19
Insurance, Contracts and Funding. . . . . . . . . . . . . 20
Indemnification Not Exclusive Right . . . . . . . . . . . 21
Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies. . . . . 21
Severability. . . . . . . . . . . . . . . . . . . . . . . 26
Indemnification of Employees Serving
as Directors . . . . . . . . . . . . . . . . . . . . 26
Indemnification of Employees and Agents . . . . . . . . . 27
ARTICLE VII: Capital Stock 27
Certificates for Shares . . . . . . . . . . . . . . . . . 27
Transfer of Shares. . . . . . . . . . . . . . . . . . . . 28
Registered Stockholders and Addresses
of Stockholders. . . . . . . . . . . . . . . . . . . 29
<PAGE>
Lost, Destroyed and Mutilated Certificates. . . . . . . . 29
Regulations . . . . . . . . . . . . . . . . . . . . . . . 30
Fixing Date for Determination of
Stockholders of Record . . . . . . . . . . . . . . . 30
Transfer Agents and Registrars. . . . . . . . . . . . . . 30
ARTICLE VIII: Seal 30
ARTICLE IX: Fiscal Year 31
ARTICLE X: Waiver of Notice 31
ARTICLE XI: Amendments 31
ARTICLE XII: Miscellaneous 32
Execution of Documents. . . . . . . . . . . . . . . . . . 32
Deposits. . . . . . . . . . . . . . . . . . . . . . . . . 32
Checks. . . . . . . . . . . . . . . . . . . . . . . . . . 32
Proxies in Respect of Stock or Other
Securities of Other Corporations . . . . . . . . . . 32
Subject to Law and Certificate of
Incorporation. . . . . . . . . . . . . . . . . . . . 33
<PAGE>
<PAGE>
ARTICLE I
Offices
SECTION 1. Registered Office. The registered office of Time
Warner Inc. (hereinafter called the Corporation) in the State of Delaware
shall be at 32 Loockerman Square, Suite L-100, Dover, Delaware 19901 and
the registered agent shall be The Prentice-Hall Corporation System, Inc.,
or such other office or agent as the Board of Directors of the Corporation
(the "Board") shall from time to time select.
SECTION 2. Other Offices. The Corporation may also have an
office or offices, and keep the books and records of the Corporation,
except as may otherwise be required by law, at such other place or places,
either within or without the State of Delaware, as the Board may from time
to time determine or the business of the Corporation may require.
ARTICLE II
Meetings of Stockholders
SECTION 1. Place of Meeting. All meetings of the stockholders
of the Corporation (the "stockholders") shall be held at the office of
the Corporation or at such other places, within or without the State of
Delaware, as may from time to time be fixed by the Board.
SECTION 2. Annual Meetings. The annual meeting of the
stockholders for the election of directors and for the transaction of
such other business as may properly come before the meeting shall be
held on such date and at such hour as shall from time to time be fixed
by the Board. Any previously scheduled annual meeting of the stockholders
may be postponed by action of the Board taken prior to the time previously
scheduled for such annual meeting of stockholders.
<PAGE>
SECTION 3. Special Meetings. Except as otherwise required by
law or the Restated Certificate of Incorporation of the Corporation (the
"Certificate") and subject to the rights of the holders of any series of
Preferred Stock or Series Common Stock or any class or series of stock
having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of the stockholders for any purpose or
purposes may be called by the Chairman, either Co-Chief Executive Officer,
or the President or a majority of the entire Board. Only such business
as is specified in the notice of any special meeting of the stockholders
shall come before such meeting.
SECTION 4. Notice of Meetings. Except as otherwise provided
by law, written notice of each meeting of the stockholders, whether annual
or special, shall be given, either by personal delivery or by mail, not
less than 10 nor more than 60 days before the date of the meeting to each
stockholder of record entitled to notice of the meeting. If mailed, such
notice shall be deemed given when deposited in the United States mail,
postage prepaid, directed to the stockholder at such stockholder's address
as it appears on the records of the Corporation. Each such notice shall
state the place, date and hour of the meeting, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called. Notice
of any meeting of stockholders shall not be required to be given to any
stockholder who shall attend such meeting in person or by proxy without
protesting, prior to or at the commencement of the meeting, the lack of
proper notice to such stockholder, or who shall waive notice thereof as
provided in Article X of these By-laws. Notice of adjournment of a meeting
of stockholders need not be given if the time and place to which it is
adjourned are announced at such meeting, unless the adjournment is for more
than 30 days or, after adjournment, a new record date is fixed for the
adjourned meeting.
SECTION 5. Quorum. Except as otherwise provided by law or by
the Certificate, the holders of a majority of the votes entitled to be
cast by the stockholders entitled to vote generally, present in person
or by proxy, shall constitute a quorum at any meeting of the stockholders;
provided, however, that in the case of any vote to be taken by classes,
the holders of a majority of the votes entitled to be cast by the
stockholders of a particular
<PAGE>
class, present in person or by proxy, shall constitute a quorum of such
class.
SECTION 6. Adjournments. The chairman of the meeting or the
holders of a majority of the votes entitled to be cast by the stockholders
who are present in person or by proxy may adjourn the meeting from time
to time whether or not a quorum is present. In the event that a quorum
does not exist with respect to any vote to be taken by a particular class,
the chairman of the meeting or the holders of a majority of the votes
entitled to be cast by the stockholders of such class who are present
in person or by proxy may adjourn the meeting with respect to the vote(s)
to be taken by such class. At any such adjourned meeting at which a
quorum may be present, any business may be transacted which might have
been transacted at the meeting as originally called.
SECTION 7. Order of Business. At each meeting of the
stockholders, the Chairman or, in the absence of the Chairman, the
President, or in the absence of both the Chairman and the President,
such person as shall be selected by the Board shall act as chairman
of the meeting. The order of business at each such meeting shall be
as determined by the chairman of the meeting. The chairman of the
meeting shall have the right and authority to prescribe such rules,
regulations and procedures and to do all such acts and things as
are necessary or desirable for the proper conduct of the meeting,
including, without limitation, the establishment of procedures for
the maintenance of order and safety, limitations on the time
allotted to questions or comments on the affairs of the Corporation,
restrictions on entry to such meeting after the time prescribed for the
commencement thereof, and the opening and closing of the voting polls.
At any annual meeting of stockholders, only such business shall
be conducted as shall have been brought before the annual meeting (i)
by or at the direction of the chairman of the meeting or (ii) by any
stockholder who is a holder of record at the time of the giving of the
notice provided for in this Section 7, who is entitled to vote at the
meeting and who complies with the procedures set forth in this Section 7.
<PAGE>
For business properly to be brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in
proper written form to the Secretary of the Corporation (the "Secretary").
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Corporation not less
than 70 days nor more than 120 days prior to the anniversary date of the
immediately preceding annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days earlier or more
than 60 days later than such anniversary date, notice by the stockholder
to be timely must be so delivered or received not earlier than the 120th
day prior to such annual meeting and not later than the close of business
on the later of the 70th day prior to such annual meeting or the 10th day
following the day on which public announcement of the date of such meeting
is first made. To be in proper written form, a stockholder's notice to the
Secretary shall set forth in writing as to each matter the stockholder
proposes to bring before the annual meeting: (i) a brief description of the
business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting; (ii) the name and
address, as they appear on the Corporation's books, of the stockholder
proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; (iv) any
material interest of the stockholder in such business; and (v) if the
stockholder intends to solicit proxies in support of such stockholder's
proposal, a representation to that effect. The foregoing notice
requirements shall be deemed satisfied by a stockholder if the
stockholder has notified the Corporation of his or her intention to
present a proposal at an annual meeting and such stockholder's proposal
has been included in a proxy statement that has been prepared by
management of the Corporation to solicit proxies for such annual meeting;
provided, however, that if such stockholder does not appear or send a
qualified representative to present such proposal at such annual meeting,
the Corporation need not present such proposal for a vote at such meeting,
notwithstanding that proxies in respect of such vote may have been received
by the Corporation. Notwithstanding anything in the By-laws to the
contrary, no business shall be conducted at any annual meeting except in
accordance with the procedures set forth in this Section 7. The chairman
of an annual meeting may refuse to permit any
<PAGE>
business to be brought before an annual meeting which fails to comply
with the foregoing procedures or, in the case of a stockholder proposal,
if the stockholder solicits proxies in support of such stockholder's
proposal without having made the representation required by clause (v) of
the second preceding sentence.
SECTION 8. List of Stockholders. It shall be the duty of the
Secretary or other officer who has charge of the stock ledger to prepare and
make, at least 10 days before each meeting of the stockholders, a complete
list of the stockholders entitled to vote thereat, arranged in alphabetical
order, and showing the address of each stockholder and the number of shares
registered in such stockholder's name. Such list shall be produced and kept
available at the times and places required by law.
SECTION 9. Voting. Except as otherwise provided by law or by
the Certificate, each stockholder of record of any series of Preferred Stock
or Series Common Stock shall be entitled at each meeting of stockholders to
such number of votes, if any, for each share of such stock as may be fixed
in the Certificate or in the resolution or resolutions adopted by the Board
providing for the issuance of such stock, and each stockholder of record of
Common Stock shall be entitled at each meeting of stockholders to one vote
for each share of such stock, in each case, registered in such stockholder's
name on the books of the Corporation:
(1) on the date fixed pursuant to Section 6 of Article VII of
these By-laws as the record date for the determination of
stockholders entitled to notice of and to vote at such meeting; or
(2) if no such record date shall have been so fixed, then at
the close of business on the day next preceding the day on which
notice of such meeting is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the
meeting is held.
Each stockholder entitled to vote at any meeting of stockholders
may authorize not in excess of three persons to act for such stockholder
by proxy. Any such proxy shall be delivered
<PAGE>
to the secretary of such meeting at or prior to the time designated for
holding such meeting, but in any event not later than the time designated
in the order of business for so delivering such proxies. No such proxy
shall be voted or acted upon after three years from its date, unless the
proxy provides for a longer period.
At each meeting of the stockholders, all corporate actions to
be taken by vote of the stockholders (except as otherwise required by law
and except as otherwise provided in the Certificate or these By-laws) shall
be authorized by a majority of the votes cast by the stockholders entitled
to vote thereon who are present in person or represented by proxy, and where
a separate vote by class is required, a majority of the votes cast by the
stockholders of such class who are present in person or represented by proxy
shall be the act of such class.
Unless required by law or determined by the chairman of the
meeting to be advisable, the vote on any matter, including the election
of directors, need not be by written ballot. In the case of a vote by
written ballot, each ballot shall be signed by the stockholder voting, or
by such stockholder's proxy, and shall state the number of shares voted.
SECTION 10. Inspectors. The chairman of the meeting shall
appoint two or more inspectors to act at any meeting of stockholders.
Such inspectors shall perform such duties as shall be required by law
or specified by the chairman of the meeting. Inspectors need not be
stockholders. No director or nominee for the office of director shall
be appointed such inspector.
SECTION 11. Public Announcements. For purpose of Section 7 of
this Article II and Section 3 of Article III, "public announcement" shall
mean disclosure (i) in a press release reported by the Dow Jones News
Service, Reuters Information Service or any similar or successor news wire
service or (ii) in a writing distributed generally to stockholders and in
a document publicly filed by the Corporation with the Securities and
Exchange Commission pursuant to Sections 13, 14 or 15(d) of the Securities
Exchange Act of 1934 or any successor provisions thereto.
<PAGE>
ARTICLE III
Board of Directors
SECTION 1. General Powers. The business and affairs of the
Corporation shall be managed by or under the direction of the Board, which
may exercise all such powers of the Corporation and do all such lawful acts
and things as are not by law or by the Certificate directed or required to
be exercised or done by the stockholders.
SECTION 2. Number, Qualification and Election. Except as
otherwise fixed by or pursuant to the provisions of Article IV of the
Certificate relating to the rights of the holders of any series of Preferred
Stock or Series Common Stock or any class or series of stock having
preference over the Common Stock as to dividends or upon liquidation, the
number of directors of the Corporation shall be determined from time to time
by the Board by the affirmative vote of directors constituting at least a
majority of the entire Board; provided that the number thereof may not be
less than three.
The directors, other than those who may be elected by the
holders of shares of any series of Preferred Stock or Series Common Stock
or any class or series of stock having a preference over the Common Stock
of the Corporation as to dividends or upon liquidation pursuant to the terms
of Article IV of the Certificate or any resolution or resolutions providing
for the issuance of such stock adopted by the Board, shall be elected by the
stockholders entitled to vote thereon at each annual meeting of the
stockholders, and shall hold office until the next annual meeting of
stockholders and until each of their successors shall have been duly elected
and qualified.
Each director shall be at least 21 years of age. Directors need
not be stockholders of the Corporation.
In any election of directors, the persons receiving a plurality
of the votes cast, up to the number of directors to be elected in such
election, shall be deemed elected.
<PAGE>
SECTION 3. Notification of Nominations. Subject to the rights
of the holders of any series of Preferred Stock or Series Common Stock or
any class or series of stock having a preference over the Common Stock as
to dividends or upon liquidation, nominations for the election of directors
may be made by the Board or by any stockholder who is a stockholder of
record at the time of giving of the notice of nomination provided for in
this Section 3 and who is entitled to vote for the election of directors.
Any stockholder of record entitled to vote for the election of directors at
a meeting may nominate persons for election as directors only if timely
written notice of such stockholder's intent to make such nomination is
given, either by personal delivery or by United States mail, postage
prepaid, to the Secretary. To be timely, a stockholder's notice must be
delivered to or mailed and received at the principal executive offices of
the Corporation (i) with respect to an election to be held at an annual
meeting of stockholders, not less than 70 nor more than 120 days prior to
the anniversary date of the immediately preceding annual meeting; provided,
however, that in the event that the date of the annual meeting is more than
30 days earlier or more than 60 days later than such anniversary date,
notice by the stockholder to be timely must be so delivered or received not
earlier than the 120th day prior to such annual meeting and not later than
the close of business on the later of the 70th day prior to such annual
meeting or the 10th day following the day on which public announcement of
the date of such meeting is first made and (ii) with respect to an election
to be held at a special meeting of stockholders for the election of
directors, not earlier than the 90th day prior to such special meeting and
not later than the close of business on the later of the 60th day prior to
such special meeting or the 10th day following the day on which public
announcement is first made of the date of the special meeting and of the
nominees to be elected at such meeting. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person
or by proxy at the meeting to nominate the person or persons specified in
the notice; (c) a description of all arrangements or understandings between
the stockholder and each nominee and any other person or persons (naming
such person or persons) pursuant to
<PAGE>
which the nomination or nominations are to be made by the stockholder; (d)
such other information regarding each nominee proposed by such stockholder
as would have been required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board; (e)
the consent of each nominee to serve as a director of the Corporation if so
elected and (f) if the stockholder intends to solicit proxies in support of
such stockholder's nominee(s), a representation to that effect. The
chairman of the meeting may refuse to acknowledge the nomination of any
person not made in compliance with the foregoing procedure or if the
stockholder solicits proxies in favor of such stockholder's nominee(s)
without having made the representation required by the immediately preceding
sentence. Only such persons who are nominated in accordance with the
procedures set forth in this Section 3 shall be eligible to serve as
directors of the Corporation.
Notwithstanding anything in the immediately preceding paragraph
of this Section 3 to the contrary, in the event that the number of directors
to be elected to the Board of Directors of the Corporation at an annual
meeting of stockholders is increased and there is no public announcement
naming all of the nominees for directors or specifying the size of the
increased Board of Directors made by the Corporation at least 70 days prior
to the first anniversary of the preceding year's annual meeting, a
shareholder's notice required by this Section 3 shall also be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to or mailed to and received by the
secretary at the principal executive offices of the Corporation not later
than the close of business on the 10th day following the day on which such
public announcement is first made by the Corporation.
SECTION 4. Quorum and Manner of Acting. Except as otherwise
provided by law, the Certificate or these By-laws, a majority of the entire
Board shall constitute a quorum for the transaction of business at any
meeting of the Board, and, except as so provided, the vote of a majority of
the directors present at any meeting at which a quorum is present shall be
the act of the Board. The chairman of the meeting or a majority of the
directors present
<PAGE>
may adjourn the meeting to another time and place whether or not a quorum
is present. At any adjourned meeting at which a quorum is present, any
business may be transacted which might have been transacted at the meeting
as originally called.
SECTION 5. Place of Meeting. The Board may hold its meetings
at such place or places within or without the State of Delaware as the Board
may from time to time determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof.
SECTION 6. Regular Meetings. Regular meetings of the Board
shall be held at such times and places as the Board shall from time to time
by resolution determine. If any day fixed for a regular meeting shall be
a legal holiday under the laws of the place where the meeting is to be held,
the meeting which would otherwise be held on that day shall be held at the
same hour on the next succeeding business day.
SECTION 7. Special Meetings. Special meetings of the Board
shall be held whenever called by the Chairman, either Co-Chief Executive
Officer, or the President or by a majority of the directors.
SECTION 8. Notice of Meetings. Notice of regular meetings of
the Board or of any adjourned meeting thereof need not be given. Notice of
each special meeting of the Board shall be given by overnight delivery
service or mailed to each director, in either case addressed to such
director at such director's residence or usual place of business, at least
two days before the day on which the meeting is to be held or shall be sent
to such director at such place by telegraph or telecopy or be given
personally or by telephone, not later than the day before the meeting is to
be held, but notice need not be given to any director who shall, either
before or after the meeting, submit a signed waiver of such notice or who
shall attend such meeting without protesting, prior to or at its
commencement, the lack of notice to such director. Every such notice shall
state the time and place but need not state the purpose of the meeting.
<PAGE>
SECTION 9. Rules and Regulations. The Board may adopt such
rules and regulations not inconsistent with the provisions of law, the
Certificate or these By-laws for the conduct of its meetings and management
of the affairs of the Corporation as the Board may deem proper.
SECTION 10. Participation in Meeting by Means of Communications
Equipment. Any one or more members of the Board or any committee thereof
may participate in any meeting of the Board or of any such committee by
means of conference telephone or similar communications equipment by means
of which all persons participating in the meeting can hear each other, and
such participation in a meeting shall constitute presence in person at such
meeting.
SECTION 11. Action without Meeting. Any action required or
permitted to be taken at any meeting of the Board or any committee thereof
may be taken without a meeting if all of the members of the Board or of any
such committee consent thereto in writing and the writing or writings are
filed with the minutes or proceedings of the Board or of such committee.
SECTION 12. Resignations. Any director of the Corporation may
at any time resign by giving written notice to the Board, the Chairman, the
President or the Secretary. Such resignation shall take effect at the time
specified therein or, if the time be not specified therein, upon receipt
thereof; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
SECTION 13. Removal of Directors. Directors may be removed
only as provided in Section 4 of Article VI of the Certificate.
SECTION 14. Vacancies. Subject to the rights of the holders
of any series of Preferred Stock or Series Common Stock or any class or
series of stock having a preference over the Common Stock of the Corporation
as to dividends or upon liquidation, any vacancies on the Board resulting
from death, resignation, removal or other cause shall only be filled by the
Board by the affirmative vote of a majority of the remaining directors then
in office, even
<PAGE>
though less than a quorum of the Board, or by a sole remaining director, and
newly created directorships resulting from any increase in the number of
directors shall be filled by the Board, or if not so filled, by the
stockholders at the next annual meeting thereof or at a special meeting
called for that purpose in accordance with Section 3 of Article II of these
By-laws. Any director elected in accordance with the preceding sentence of
this Section 14 shall hold office until the next annual meeting of
stockholders and until such director's successor shall have been elected and
qualified.
SECTION 15. Compensation. Each director, in consideration of
such person serving as a director, shall be entitled to receive from the
Corporation such amount per annum and such fees (payable in cash or stock)
for attendance at meetings of the Board or of committees of the Board, or
both, as the Board shall from time to time determine. In addition, each
director shall be entitled to receive from the Corporation reimbursement for
the reasonable expenses incurred by such person in connection with the
performance of such person's duties as a director. Nothing contained in
this Section shall preclude any director from serving the Corporation or any
of its subsidiaries in any other capacity and receiving proper compensation
therefor.
SECTION 16. Independent Directors.
(a) Independence of Members of Board of Directors at Time
of Nomination. At the time that the Board determines the slate of directors
for election at an Annual Meeting of Stockholders, a majority of the members
of the Board, assuming the election of the nominated slate and taking into
account resignations effective on or prior to such Annual Meeting, shall be
determined by the Board to be eligible to be classified as independent
directors.
(b) Directors Elected to Fill Vacancies on the Board or
Newly Created Directorships. If the Board elects directors between Annual
Meetings of Stockholders to fill vacancies or newly created directorships,
the majority of all directors holding office immediately after such
elections shall be determined by the Board to be eligible to be classified
as independent
<PAGE>
directors.
(c) Determination of Independence of Directors. In its
determination of a director's eligibility to be classified as an independent
director pursuant to this Section 16, the Board shall consider, among such
other factors as it may in any case deem relevant, that the director: (i)
has not been employed by the Corporation as an executive officer within the
past three years; (ii) is not a paid adviser or consultant to the
Corporation and derives no financial benefit from any entity as a result of
advice or consultancy provided to the Corporation by such entity; (iii) is
not an executive officer, director or significant stockholder of a
significant customer or supplier of the Corporation; (iv) has no personal
services contract with the Corporation; (v) is not an executive officer or
director of a tax-exempt entity receiving a significant part of its annual
contributions from the Corporation; (vi) is not a member of the immediate
family of any director who is not considered an independent director; and
(vii) is free of any other relationship that would interfere with the
exercise of independent judgment by such director.
ARTICLE IV
Committees of the Board of Directors
SECTION 1. Establishment of Committees of the Board
of Directors; Election of Members of Committees of the Board of Directors;
Functions of Committees of the Board of Directors. The Board may, in
accordance with and subject to the General Corporation Law of the State of
Delaware, from time to time establish committees of the Board to exercise
such powers and authorities of the Board, and to perform such other
functions, as the Board may from time to time determine.
SECTION 2. Procedure; Meetings; Quorum. Regular meetings of
committees of the Board, of which no notice shall be necessary, may be held
at such times and places as shall be fixed by resolution adopted by a
majority of the members thereof. Special meetings of any committee of the
Board shall be called at the request of any member thereof. Notice of each
special meeting
<PAGE>
of any committee of the Board shall be sent by overnight delivery service,
or mailed to each member thereof, in either case addressed to such member
at such member's residence or usual place of business, at least two days
before the day on which the meeting is to be held or shall be sent to such
member at such place by telegraph or telecopy or be given personally or by
telephone, not later than the day before the meeting is to be held, but
notice need not be given to any member who shall, either before or after the
meeting, submit a signed waiver of such notice or who shall attend such
meeting without protesting, prior to or at its commencement, the lack of
such notice to such member. Any special meeting of any committee of the
Board shall be a legal meeting without any notice thereof having been given,
if all the members thereof shall be present thereat and no member shall
protest the lack of notice to such member. Notice of any adjourned meeting
of any committee of the Board need not be given. Any committee of the Board
may adopt such rules and regulations not inconsistent with the provisions
of law, the Certificate or these By-laws for the conduct of its meetings as
such committee of the Board may deem proper. A majority of the members of
any committee of the Board shall constitute a quorum for the transaction of
business at any meeting, and the vote of a majority of the members thereof
present at any meeting at which a quorum is present shall be the act of such
committee. Each committee of the Board shall keep written minutes of its
proceedings and shall report on such proceedings to the Board.
ARTICLE V
Officers
SECTION 1. Number; Term of Office. The officers of the
Corporation shall be such officers, which may include a Chairman of the
Board, Chief Executive Officer or Co-Chief Executive Officers, President,
Chief Operating Officer, Chairman of the Executive Committee and one or more
Vice Chairmen and Vice Presidents (including, without limitation, Assistant,
Executive, Senior and Group Vice Presidents) and a Treasurer, Secretary and
Controller and such other officers or agents with such titles and such
duties as the Board may from time to time determine, each to have such
<PAGE>
authority, functions or duties as in these By-laws provided or as the Board
may from time to time determine, and each to hold office for such term as
may be prescribed by the Board and until such person's successor shall have
been chosen and shall qualify, or until such person's death or resignation,
or until such person's removal in the manner hereinafter provided. The
Chairman, the Chief Executive Officers, the Vice-Chairmen, the Chairman of
the Executive Committee, and the President, if any, shall be elected from
among the directors. One person may hold the offices and perform the duties
of any two or more of said officers; provided, however, that no officer
shall execute, acknowledge or verify any instrument in more than one
capacity if such instrument is required by law, the Certificate or these
By-laws to be executed, acknowledged or verified by two or more officers.
The Board may from time to time authorize any officer to appoint and remove
any such other officers and agents and to prescribe their powers and duties.
The Board may require any officer or agent to give security for the faithful
performance of such person's duties.
Except as otherwise provided by these By-laws, any reference to
the Chairman or Chief Executive Officer in these By-laws shall be deemed to
mean, if there are Co-Chairmen or Co-Chief Executive Officers, either
Co-Chairmen or either Co-Chief Executive Officer, each of whom may severally
exercise the full powers and authorities of the office of Chairman or Chief
Executive Officer, as the case may be.
SECTION 2. Removal. Any officer may be removed, either with
or without cause, by the Board at any meeting thereof called for the purpose
or, except in the case of any officer elected by the Board, by any superior
officer upon whom such power may be conferred by the Board.
SECTION 3. Resignation. Any officer may resign at any time by
giving notice to the Board, the Chairman or the Secretary. Any such
resignation shall take effect at the date of receipt of such notice or at
any later date specified therein; and, unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it
effective.
<PAGE>
SECTION 4. Vacancies. A vacancy in any office because of
death, resignation, removal or any other cause may be filled for the
unexpired portion of the term in the manner prescribed in these By-laws for
election to such office.
SECTION 5. Chairman of the Board. The Chairman shall, if
present, preside at meetings of the Board and, if present, preside at
meetings of the stockholders, and, if present and in the absence of the
Chairman of the Executive Committee, preside at meetings of the Executive
Committee. The Chairman may sign and execute in the name of the Corporation
deeds, mortgages, bonds, contracts or other instruments. The Chairman
shall, when requested, counsel with and advise the other officers of the
Corporation and shall perform such other duties as he may agree with the
Chief Executive Officer or as the Board may from time to time determine.
SECTION 6. Chief Executive Officer. The Chief Executive
Officer shall have general supervision and direction of the business and
affairs of the Corporation, subject to the control of the Board. The Chief
Executive Officer may sign and execute in the name of the Corporation deeds,
mortgages, bonds, contracts or other instruments. The Chief Executive
Officer shall, when requested, counsel with and advise the other officers
of the Corporation and shall perform such other duties as the Board may from
time to time determine.
SECTION 7. The President. The President shall perform such
senior executive duties as the Board shall from time to time determine. The
President shall, if present and in the absence of the Chairman, preside at
meetings of the stockholders and, if present and in the absence of the
Chairman, preside at meetings of the Board and, if present and in the
absence of the Chairman of the Executive Committee and the Chairman of the
Board, preside at meetings of the Executive Committee. The President may
sign and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments. The President shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as he may agree with the Chief Executive Officer
or as the Board may from time to time determine.
<PAGE>
SECTION 8. Chief Operating Officer. The Chief Operating
Officer shall perform such senior duties in connection with the operations
of the Corporation as the Board or the Chief Executive Officer shall from
time to time determine. The Chief Operating Officer may sign and execute
in the name of the Corporation deeds, mortgages, bonds, contracts and other
instruments. The Chief Operating Officer, shall, when requested, counsel
with and advise the other officers of the Corporation and shall perform such
other duties as he may agree with the Chief Executive Officer or as the
Board may from time to time determine.
SECTION 9. Vice-Chairman of the Board. In the absence of the
Chairman of the Board and the President, the Vice-Chairman of the Board (the
"Vice Chairman") if one shall have been elected, or if there shall be more
than one, a Vice-Chairman as designated by the Chairman or the President,
or, in the absence of such designation, as designated by the Board, shall,
if present, preside at meetings of the Board. The Vice Chairman may sign
and execute in the name of the Corporation deeds, mortgages, bonds,
contracts or other instruments. The Vice Chairman shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as he may agree with the Chief Executive Officer
or as the Board may from time to time determine.
SECTION 10. Chairman of the Executive Committee. The Chairman
of the Executive Committee shall, if present, preside at meetings of the
Executive Committee. The Chairman of the Executive Committee shall perform
such other duties as the Board or the Executive Committee may from time to
time determine. The Chairman of the Executive Committee shall, when
requested, counsel with and advise the other officers of the Corporation and
shall perform such other duties as he may agree with the Chief Executive
Officer or as the Board may from time to time determine.
SECTION 11. Chief Financial Officer. The Chief Financial
Officer of the Corporation, if one shall have been elected, shall perform
all the powers and duties of the office of the chief financial officer and
in general have overall supervision of the financial operations of the
Corporation. The Chief Financial Officer may sign and execute in the name
of the Corporation deeds, mortgages, bonds, contracts or other
<PAGE>
instruments. The Chief Financial Officer shall, when requested, counsel
with and advise the other officers of the Corporation and shall perform such
other duties as he may agree with the Chief Executive Officer or as the
Board may from time to time determine.
SECTION 12. Vice-Presidents. Any Vice-President shall have
such powers and duties as shall be prescribed by his superior officer or the
Board. Any Vice-President may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The
Vice President shall, when requested, counsel with and advise the other
officers of the Corporation and shall perform such other duties as he may
agree with the Chief Executive Officer or as the Board may from time to time
determine.
SECTION 13. Treasurer. The Treasurer, if one shall have been
elected, shall supervise and be responsible for all the funds and securities
of the Corporation; the deposit of all moneys and other valuables to the
credit of the Corporation in depositories of the Corporation; borrowings and
compliance with the provisions of all indentures, agreements and instruments
governing such borrowings to which the Corporation is a party; the
disbursement of funds of the Corporation and the investment of its funds;
and in general shall perform all of the duties incident to the office of the
Treasurer. The Treasurer may sign and execute in the name of the
Corporation deeds, mortgages, bonds, contracts or other instruments. The
Treasurer shall, when requested, counsel with and advise the other officers
of the Corporation and shall perform such other duties as he may agree with
the Chief Executive Officer or as the Board may from time to time determine.
SECTION 14. Controller. The Controller shall be the chief
accounting officer of the Corporation. The Controller may sign and execute
in the name of the Corporation deeds, mortgages, bonds, contracts or other
instruments. The Controller shall, when requested, counsel with and advise
the other officers of the Corporation and shall perform such other duties
as he may agree with the Chief Executive Officer or the Chief Financial
Officer or as the Board may from time to time determine.
SECTION 15. Secretary. It shall be the duty of the Secretary
to act as secretary at all meetings of the Board, of the
<PAGE>
committees of the Board and of the stockholders and to record the
proceedings of such meetings in a book or books to be kept for that purpose;
the Secretary shall see that all notices required to be given by the
Corporation are duly given and served; the Secretary shall be custodian of
the seal of the Corporation and shall affix the seal or cause it to be
affixed to all certificates of stock of the Corporation (unless the seal of
the Corporation on such certificates shall be a facsimile, as hereinafter
provided) and to all documents, the execution of which on behalf of the
Corporation under its seal is duly authorized in accordance with the
provisions of these By-laws; the Secretary shall have charge of the books,
records and papers of the Corporation and shall see that the reports,
statements and other documents required by law to be kept and filed are
properly kept and filed; and in general shall perform all of the duties
incident to the office of Secretary. The Secretary shall, when requested,
counsel with and advise the other officers of the Corporation and shall
perform such other duties as he may agree with the Chief Executive Officer
or as the Board may from time to time determine.
SECTION 16. Assistant Treasurers and Assistant Secretaries.
Any Assistant Treasurers and Assistant Secretaries shall perform such duties
as shall be assigned to them by the Board. Any Assistant Treasurer or
Assistant Secretary shall perform such duties as shall be assigned to them
by the Treasurer or Secretary, respectively, or by the Chairman of the Board
or by the Chief Executive Officer.
ARTICLE VI
Indemnification
SECTION 1. Right to Indemnification. The Corporation, to the
fullest extent permitted or required by Delaware General Corporation Law or
other applicable law, as the same exists or may hereafter be amended (but,
in the case of any such amendment and unless applicable law otherwise
requires, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), shall indemnify and hold
harmless
<PAGE>
any person who is or was a director or officer of the Corporation and who
is or was involved in any manner (including, without limitation, as a party
or a witness) or is threatened to be made so involved in any threatened,
pending or completed investigation, claim, action, suit or proceeding,
whether civil, criminal, administrative or investigative (including, without
limitation, any action, suit or proceedings by or in the right of the
Corporation to procure a judgment in its favor) (a "Proceeding") by reason
of the fact that such person is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise
(including, without limitation, any employee benefit plan) (a "Covered
Entity") against all expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such Proceeding; provided, however, that the
foregoing shall not apply to a director or officer of the Corporation with
respect to a Proceeding that was commenced by such director or officer
unless the proceeding was commenced after a Change in Control (as
hereinafter defined in Section 4(e) of this Article). Any director or
officer of the Corporation entitled to indemnification as provided in this
Section 1 is hereinafter called an "Indemnitee". Any right of an Indemnitee
to indemnification shall be a contract right and shall include the right to
receive, prior to the conclusion of any Proceeding, payment of any expenses
incurred by the Indemnitee in connection with such proceeding, consistent
with the provisions of applicable law as then in effect and the other
provisions of this Article.
SECTION 2. Insurance, Contracts and Funding. The Corporation
may purchase and maintain insurance to protect itself and any director,
officer, employee or agent of the Corporation or of any Covered Entity
against any expenses, judgments, fines and amounts paid in settlement as
specified in Section 1 of this Article or incurred by any such director,
officer, employee or agent in connection with any Proceeding referred to in
Section 1 of this Article, whether or not the Corporation would have the
power to indemnify such person against such expense, liability or loss under
the DGCL. The Corporation may enter into contracts with any director,
officer, employee or agent of the Corporation or of any
<PAGE>
Covered Entity in furtherance of the provisions of this Article and may
create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment
of such amounts as may be necessary to effect indemnification as provided
or authorized in this Article.
SECTION 3. Indemnification Not Exclusive Right. The right of
indemnification provided in this Article shall not be exclusive of any other
rights to which an Indemnitee may otherwise be entitled, and the provisions
of this Article shall inure to the benefit of the heirs and legal
representatives of any Indemnitee under this Article and shall be applicable
to Proceedings commenced or continuing after the adoption of this Article,
whether arising from acts or omissions occurring before or after such
adoption.
SECTION 4. Advancement of Expenses; Procedures; Presumptions
and Effect of Certain Proceedings; Remedies. In furtherance, but not in
limitation of the foregoing provisions, the following procedures,
presumptions and remedies shall apply with respect to advancement of
expenses and the right to indemnification under this Article:
(a) Advancement of Expenses. All reasonable expenses
(including attorney's fees) incurred by or on behalf of the Indemnitee in
connection with any Proceeding shall be advanced to the Indemnitee by the
Corporation within 20 days after the receipt by the Corporation of a
statement or statements from the Indemnitee requesting such advance or
advances from time to time, whether prior to or after final disposition of
such Proceeding. Such statement or statements shall reasonably evidence the
expenses incurred by the Indemnitee and, if required by law at the time of
such advance, shall include or be accompanied by an undertaking by or on
behalf of the Indemnitee to repay the amounts advanced if ultimately it
should be determined that the Indemnitee is not entitled to be indemnified
against such expenses pursuant to this Article.
(b) Procedure for Determination of Entitlement to
Indemnification. (i) To obtain indemnification under this Article, an
Indemnitee shall submit to the Secretary a written request, including such
documentation and information as is
<PAGE>
reasonably available to the Indemnitee and reasonably necessary to determine
whether and to what extent the Indemnitee is entitled to indemnification
(the "Supporting Documentation"). The determination of the Indemnitee's
entitlement to indemnification shall be made not later than 60 days after
receipt by the Corporation of the written request for indemnification
together with the Supporting Documentation. The Secretary shall, promptly
upon receipt of such a request for indemnification, advise the Board in
writing that the Indemnitee has requested indemnification.
(ii) The Indemnitee's entitlement to indemnification under
this Article shall be determined in one of the following ways: (A) by a
majority vote of the Disinterested Directors (as hereinafter defined in
Section 4(e) of this Article), whether or not they constitute a quorum of
the Board; (B) by a written opinion of Independent Counsel (as hereinafter
defined in Section 4(e) of this Article) if (x) a Change in Control (as
hereinafter defined in Section 4(e) of this Article) shall have occurred and
the Indemnitee so requests or (y) there are no Disinterested Directors or
a majority of such Disinterested Directors so directs; (C) by the
stockholders of the Corporation; or (D) as provided in Section 4(c) of this
Article.
(iii) In the event the determination of entitlement to
indemnification is to be made by Independent Counsel pursuant to Section
4(b) (ii) of this Article, a majority of the Disinterested Directors shall
select the Independent Counsel, but only an Independent Counsel to which the
Indemnitee does not reasonably object; provided, however, that if a Change
in Control shall have occurred, the Indemnitee shall select such Independent
Counsel, but only an Independent Counsel to which a majority of the
Disinterested Directors does not reasonably object.
(c) Presumptions and Effect of Certain Proceedings.
Except as otherwise expressly provided in this Article, if a Change in
Control shall have occurred, the Indemnitee shall be presumed to be entitled
to indemnification under this Article (with respect to actions or omissions
occurring prior to such Change in Control) upon submission of a request for
indemnification together with the Supporting Documentation in accordance
with Section 4(b)(i) of this Article, and thereafter the Corporation shall
have the burden of
<PAGE>
proof to overcome that presumption in reaching a contrary determination.
In any event, if the person or persons empowered under Section 4(b) of this
Article to determine entitlement to indemnification shall not have been
appointed or shall not have made a determination within 60 days after
receipt by the Corporation of the request therefor, together with the
Supporting Documentation, the Indemnitee shall be deemed to be, and shall
be, entitled to indemnification unless (A) the Indemnitee misrepresented or
failed to disclose a material fact in making the request for indemnification
or in the Supporting Documentation or (B) such indemnification is prohibited
by law. The termination of any Proceeding described in Section 1 of this
Article, or of any claim, issue or matter therein, by judgment, order,
settlement or conviction, or upon a plea of nolo contendere or its
equivalent, shall not, of itself, adversely affect the right of the
Indemnitee to indemnification or create a presumption that the Indemnitee
did not act in good faith and in a manner which the Indemnitee reasonably
believed to be in or not opposed to the best interests of the Corporation
or, with respect to any criminal proceeding, that the Indemnitee had
reasonable cause to believe that such conduct was unlawful.
(d) Remedies of Indemnitee. (i) In the event that a
determination is made pursuant to Section 4(b) of this Article that the
Indemnitee is not entitled to indemnification under this Article, (A) the
Indemnitee shall be entitled to seek an adjudication of entitlement to such
indemnification either, at the Indemnitee's sole option, in (x) an
appropriate court of the State of Delaware or any other court of competent
jurisdiction or (y) an arbitration to be conducted by a single arbitrator
pursuant to the rules of the American Arbitration Association; (B) any such
judicial proceeding or arbitration shall be de novo and the Indemnitee shall
not be prejudiced by reason of such adverse determination; and (C) if a
Change in Control shall have occurred, in any such judicial proceeding or
arbitration, the Corporation shall have the burden of proving that the
Indemnitee is not entitled to indemnification under this Article (with
respect to actions or omissions occurring prior to such Change in Control).
(ii) If a determination shall have been made or deemed
to have been made, pursuant to Section 4(b) or (c) of this
<PAGE>
Article, that the Indemnitee is entitled to indemnification, the Corporation
shall be obligated to pay the amounts constituting such indemnification
within five days after such determination has been made or deemed to have
been made and shall be conclusively bound by such determination unless (A)
the Indemnitee misrepresented or failed to disclose a material fact in
making the request for indemnification or in the Supporting Documentation
or (B) such indemnification is prohibited by law. In the event that (X)
advancement of expenses is not timely made pursuant to Section 4(a) of this
Article or (Y) payment of indemnification is not made within five days after
a determination of entitlement to indemnification has been made or deemed
to have been made pursuant to Section 4(b) or (c) of this Article, the
Indemnitee shall be entitled to seek judicial enforcement of the
Corporation's obligation to pay to the Indemnitee such advancement of
expenses or indemnification. Notwithstanding the foregoing, the Corporation
may bring an action, in an appropriate court in the State of Delaware or any
other court of competent jurisdiction, contesting the right of the
Indemnitee to receive indemnification hereunder, due to the occurrence of
an event described in sub-clause (A) or (B) of this clause (ii) (a
"Disqualifying Event"); provided, however, that in any such action the
Corporation shall have the burden of proving the occurrence of such
Disqualifying Event.
(iii) The Corporation shall be precluded from asserting
in any judicial proceeding or arbitration commenced pursuant to this Section
4(d) that the procedures and presumptions of this Article are not valid,
binding and enforceable and shall stipulate in any such court or before any
such arbitrator that the Corporation is bound by all the provisions of this
Article.
(iv) In the event that the Indemnitee, pursuant to this
Section 4(d), seeks a judicial adjudication of or an award in arbitration
to enforce rights under, or to recover damages for breach of, this Article,
the Indemnitee shall be entitled to recover from the Corporation, and shall
be indemnified by the Corporation against, any expenses actually and
reasonably incurred by the Indemnitee if the Indemnitee prevails in such
judicial adjudication or arbitration. If it shall be determined in such
judicial adjudication or arbitration that the Indemnitee is entitled to
receive part but not all of the indemnification or
<PAGE>
advancement of expenses sought, the expenses incurred by the Indemnitee in
connection with such judicial adjudication or arbitration shall be prorated
accordingly.
(e) Definitions. For purposes of this Section 4:
(i) "Authorized Officer" means any one of the Chairman,
the President, a Vice Chairman, the Chief Financial Officer, any Vice
President or the Secretary of the Corporation.
(ii) "Change in Control" means the occurrence of any of
the following (w) any merger or consolidation of the Corporation in which
the Corporation is not the continuing or surviving corporation or pursuant
to which shares of the Corporation's Common Stock would be converted into
cash, securities or other property, other than a merger of the Corporation
in which the holders of the Corporation's Common Stock immediately prior to
the merger have the same proportionate ownership of common stock of the
surviving corporation immediately after the merger, (x) any sale, lease,
exchange or other transfer (in one transaction or a series of related
transactions) of all, or substantially all, the assets of the Corporation,
or the liquidation or dissolution of the Corporation, (y) any person (as
such term is defined in Section 4(c) of Article V of the Certificate of
Incorporation) shall become an Interested Stockholder (as defined therein)
without the prior consent of the Board, or (z) during any period of two
consecutive years, individuals who at the beginning of such period who shall
have constituted the entire Board shall have ceased for any reason to
constitute a majority thereof unless the election, or the nomination for
election by the Corporation's stockholders, of each new director shall have
been approved by a vote of at least two-thirds of the directors then still
in office who were directors at the beginning of the period.
(iii) "Disinterested Director" means a director of the
Corporation who is not or was not a party to the Proceeding in respect of
which indemnification is sought by the Indemnitee.
(iv) "Independent Counsel" means a law firm or a member
of a law firm that neither presently is, nor in the past five years has
been, retained to represent: (x) the Corporation or
<PAGE>
the Indemnitee in any matter material to either such party or (y) any other
party to the Proceeding giving rise to a claim for indemnification under
this Article. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing under the law of the State of Delaware,
would have a conflict of interest in representing either the Corporation or
the Indemnitee in an action to determine the Indemnitee's rights under this
Article.
SECTION 5. Severability. If any provision or provisions of
this Article shall be held to be invalid, illegal or unenforceable for any
reason whatsoever: (a) the validity, legality and enforceability of the
remaining provisions of this Article (including, without limitation, all
portions of any paragraph of this Article containing any such provision held
to be invalid, illegal or unenforceable, that are not themselves invalid,
illegal or unenforceable) shall not in any way be affected or impaired
thereby; and (b) to the fullest extent possible, the provisions of this
Article (including, without limitation, all portions of any paragraph of
this Article containing any such provision held to be invalid, illegal or
unenforceable, that are not themselves invalid, illegal or enforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
SECTION 6. Indemnification of Employees Serving as Directors.
The Corporation, to the fullest extent of the provisions of this Article
with respect to the indemnification of directors and officers of the
Corporation, shall indemnify any person who is or was an employee of the
Corporation and who is or was involved in any manner (including, without
limitation, as a party or a witness) or is threatened to be made so involved
in any threatened, pending or completed Proceeding by reason of the fact
that such employee is or was serving (a) as a director of a corporation in
which the Corporation had at the time of such service, directly or
indirectly, a 50 percent or greater equity interest (a "Subsidiary
Director") and (b) at the written request of an Authorized Officer, as a
director of another corporation in which the Corporation had at the time of
such service, directly or indirectly, a less than 50 percent equity interest
(or no equity
<PAGE>
interest at all) or in a capacity equivalent to that of a director for any
partnership, joint venture, trust or other enterprise (including, without
limitation, any employee benefit plan) in which the Corporation has an
interest (a "Requested Employee"), against all expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually
and reasonably incurred by such Subsidiary Director or Requested Employee
in connection with such Proceeding. The Corporation may also advance
expenses incurred by any such Subsidiary Director or Requested Employee in
connection with any such Proceeding, consistent with the provisions of this
Article with respect to the advancement of expenses of directors and
officers of the Corporation.
SECTION 7. Indemnification of Employees and Agents.
Notwithstanding any other provision or provisions of this Article, the
Corporation, to the fullest extent of the provisions of this Article with
respect to the indemnification of directors and officers of the Corporation,
may indemnify any person other than a director or officer of the
Corporation, a Subsidiary Director or a Requested Employee, who is or was
an employee or agent of the Corporation and who is or was involved in any
manner (including, without limitation, as a party or a witness) or is
threatened to be made so involved in any threatened, pending or completed
Proceeding by reason of the fact that such person is or was a director,
officer, employee or agent of a Covered Entity against all expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
Proceeding. The Corporation may also advance expenses incurred by such
employee or agent in connection with any such Proceeding, consistent with
the provisions of this Article with respect to the advancement of expenses
of directors and officers of the Corporation.
ARTICLE VII
Capital Stock
SECTION 1. Certificates for Shares. Certificates representing
shares of stock of each class of the Corporation, whenever authorized by the
Board, shall be in such form as shall be
<PAGE>
approved by the Board. The certificates representing shares of stock of
each class shall be signed by, or in the name of, the Corporation by the
Chairman or the President, a Vice Chairman or any Vice-President and by the
Secretary or any Assistant Secretary or the Treasurer or any Assistant
Treasurer of the Corporation, and sealed with the seal of the Corporation,
which may be a facsimile thereof. Any or all such signatures may be
facsimiles if countersigned by a transfer agent or registrar. Although any
officer, transfer agent or registrar whose manual or facsimile signature is
affixed to such a certificate ceases to be such officer, transfer agent or
registrar before such certificate has been issued, it may nevertheless be
issued by the Corporation with the same effect as if such officer, transfer
agent or registrar were still such at the date of its issue.
The stock ledger and blank share certificates shall be kept by
the Secretary or by a transfer agent or by a registrar or by any other
officer or agent designated by the Board.
SECTION 2. Transfer of Shares. Transfers of shares of stock
of each class of the Corporation shall be made only on the books of the
Corporation by the holder thereof, or by such holder's attorney thereunto
authorized by a power of attorney duly executed and filed with the Secretary
or a transfer agent for such stock, if any, and on surrender of the
certificate or certificates for such shares properly endorsed or accompanied
by a duly executed stock transfer power (or by proper evidence of
succession, assignment or authority to transfer) and the payment of any
taxes thereon; provided, however, that the Corporation shall be entitled to
recognize and enforce any lawful restriction on transfer. The person in
whose name shares are registered on the books of the Corporation shall be
deemed the owner thereof for all purposes as regards the Corporation;
provided, however, that whenever any transfer of shares shall be made for
collateral security and not absolutely, and written notice thereof shall be
given to the Secretary or to such transfer agent, such fact shall be stated
in the entry of the transfer. No transfer of shares shall be valid as
against the Corporation, its stockholders and creditors for any purpose,
except to render the transferee liable for the debts of the Corporation to
the extent provided by law, until it shall have been entered in the stock
records of the Corporation by an entry
<PAGE>
showing from and to whom transferred.
SECTION 3. Registered Stockholders and Addresses of
Stockholders. The Corporation shall be entitled to recognize the exclusive
right of a person registered on its records as the owner of shares of stock
to receive dividends and to vote as such owner, shall be entitled to hold
liable for calls and assessments a person registered on its records as the
owner of shares of stock, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares of stock on the part
of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by the laws of Delaware.
Each stockholder shall designate to the Secretary or transfer
agent of the Corporation an address at which notices of meetings and all
other corporate notices may be served or mailed to such person, and, if any
stockholder shall fail to designate such address, corporate notices may be
served upon such person by mail directed to such person at such person's
post office address, if any, as the same appears on the stock record books
of the Corporation or at such person's last known post office address.
SECTION 4. Lost, Destroyed and Mutilated Certificates. The
holder of any share of stock of the Corporation shall immediately notify the
Corporation of any loss, theft, destruction or mutilation of the certificate
therefor; the Corporation may issue to such holder a new certificate or
certificates for shares, upon the surrender of the mutilated certificate or,
in the case of loss, theft or destruction of the certificate, upon
satisfactory proof of such loss, theft or destruction; the Board, or a
committee designated thereby, or the transfer agents and registrars for the
stock, may, in their discretion, require the owner of the lost, stolen or
destroyed certificate, or such person's legal representative, to give the
Corporation a bond in such sum and with such surety or sureties as they may
direct to indemnify the Corporation and said transfer agents and registrars
against any claim that may be made on account of the alleged loss, theft or
destruction of any such certificate or the issuance of such new certificate.
<PAGE>
SECTION 5. Regulations. The Board may make such additional
rules and regulations as it may deem expedient concerning the issue and
transfer of certificates representing shares of stock of each class of the
Corporation and may make such rules and take such action as it may deem
expedient concerning the issue of certificates in lieu of certificates
claimed to have been lost, destroyed, stolen or mutilated.
SECTION 6. Fixing Date for Determination of Stockholders of
Record. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment or any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the purpose
of any other lawful action, the Board may fix, in advance, a record date,
which shall not be more than 60 nor less than 10 days before the date of
such meeting, nor more than 60 days prior to any other action. A
determination of stockholders entitled to notice of or to vote at a meeting
of the stockholders shall apply to any adjournment of the meeting; provided,
however, that the Board may fix a new record date for the adjourned meeting.
SECTION 7. Transfer Agents and Registrars. The Board may
appoint, or authorize any officer or officers to appoint, one or more
transfer agents and one or more registrars.
ARTICLE VIII
Seal
The Board shall provide a corporate seal, which shall be in the
form of a circle and shall bear the full name of the Corporation and the
words and figures of "Corporate Seal Delaware 1996", or such other words or
figures as the Board may approve and adopt. The seal may be used by causing
it or a facsimile thereof to be impressed or affixed or in any other manner
reproduced.
<PAGE>
ARTICLE IX
Fiscal Year
The fiscal year of the Corporation shall end on the 31st day of
December in each year.
ARTICLE X
Waiver of Notice
Whenever any notice whatsoever is required to be given by these
By-laws, by the Certificate or by law, the person entitled thereto may,
either before or after the meeting or other matter in respect of which such
notice is to be given, waive such notice in writing, which writing shall be
filed with or entered upon the records of the meeting or the records kept
with respect to such other matter, as the case may be, and in such event
such notice need not be given to such person and such waiver shall be deemed
equivalent to such notice.
ARTICLE XI
Amendments
Any By-law (other than this Article XI) may be adopted,
repealed, altered or amended by a majority of the entire Board at any
meeting thereof, provided that such proposed action in respect thereof shall
be stated in the notice of such Meeting. The stockholders of the
Corporation shall have the power to amend, alter or repeal any provision of
these By-laws only to the extent and in the manner provided in the
Certificate.
<PAGE>
ARTICLE XII
Miscellaneous
SECTION 1. Execution of Documents. The Board or any committee
thereof shall designate the officers, employees and agents of the
Corporation who shall have power to execute and deliver deeds, contracts,
mortgages, bonds, debentures, notes, checks, drafts and other orders for the
payment of money and other documents for and in the name of the Corporation
and may authorize (including authority to redelegate) by written instrument
to other officers, employees or agents of the Corporation. Such delegation
may be by resolution or otherwise and the authority granted shall be general
or confined to specific matters, all as the Board or any such committee may
determine. In the absence of such designation referred to in the first
sentence of this Section, the officers of the Corporation shall have such
power so referred to, to the extent incident to the normal performance of
their duties.
SECTION 2. Deposits. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation or otherwise as the Board or any committee thereof or any
officer of the Corporation to whom power in respect of financial operations
shall have been delegated by the Board or any such committee or in these
By-laws shall select.
SECTION 3. Checks. All checks, drafts and other orders for the
payment of money out of the funds of the Corporation, and all notes or other
evidences of indebtedness of the Corporation, shall be signed on behalf of
the Corporation in such manner as shall from time to time be determined by
resolution of the Board or of any committee thereof or by any officer of the
Corporation to whom power in respect of financial operations shall have been
delegated by the Board or any such committee thereof or as set forth in
these By-laws.
SECTION 4. Proxies in Respect of Stock or Other Securities of
Other Corporations. The Board or any committee thereof shall designate the
officers of the Corporation who shall have authority from time to time to
appoint an agent or agents of the Corporation to exercise in the name and
on behalf of the Corporation the powers and rights which the Corporation may
have as
<PAGE>
the holder of stock or other securities in any other corporation or other
entity, and to vote or consent in respect of such stock or securities; such
designated officers may instruct the person or persons so appointed as to
the manner of exercising such powers and rights; and such designated
officers may execute or cause to be executed in the name and on behalf of
the Corporation and under its corporate seal, or otherwise, such written
proxies, powers of attorney or other instruments as they may deem necessary
or proper in order that the Corporation may exercise its said powers and
rights.
SECTION 5. Subject to Law and Certificate of Incorporation.
All powers, duties and responsibilities provided for in these By-laws,
whether or not explicitly so qualified, are qualified by the provisions of
the Certificate and applicable laws.
Exhibit 10.1
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT made as of July 14, 1997,
effective as of May 1, 1997 (the "Effective Date"), between
TIME WARNER INC., a Delaware corporation (the "Company"), and
John A. LaBarca (the "Executive").
The Executive is currently employed by the Company
pursuant to an Employment Agreement dated as of January 1, 1995
(the "Prior Agreement"). The Company wishes to restate the
Prior Agreement and secure the services of the Executive on a
full-time basis for the period to and including April 30, 2002
and thereafter for a one-year advisory period on and subject to
the terms and conditions set forth in this Agreement, and the
Executive is willing for the Prior Agreement to be so restated
and to provide such services on and subject to the terms and
conditions set forth in this Agreement. The parties therefore
agree as follows:
1. Term of Employment. The Executive's "term of
employment", as this phrase is used throughout this Agreement,
shall be for the period beginning on the Effective Date and
ending on April 30, 2002, subject, however, to the terms and
conditions set forth in this Agreement. Notwithstanding the
foregoing or anything to the contrary contained in this
Agreement, the "term of employment" as used in Section 3.6,
3.7, 3.8 and 8 through 12 shall mean the period ending at the
end of the Advisory Period (as defined in Section 13).
2. Employment. The Company shall employ the
Executive, and the Executive shall serve, as Senior Vice
President, Financial Operations and Controller of the Company
during the term of employment, and the Executive shall have the
authority, functions, duties, powers and responsibilities
normally associated with such position and as the Board of
Directors, the Chief Executive Officer, the President or the
Chief Financial Officer of the Company may from time to time
delegate to the Executive in addition thereto. The Executive
shall, subject to his election as such from time to time and
without additional compensation, serve during the term of
employment in such additional offices of comparable or greater
stature and responsibility in the Company and its subsidiaries
and as a director and as a member of any committee of the Board
of Directors of the Company and its subsidiaries, to which he
may be elected from time to time. During the term of
employment, (i) the Executive's services shall be rendered on a
substantially full-time, exclusive basis and he will apply on a
full-time basis all of his skill and experience to the
performance of his duties in such employment, (ii) the
Executive shall report only to the Chief Financial Officer of
the Company, (iii) the Executive shall have no other employment
and, without the prior written consent of the Chief Executive
Officer, the President or the Chief Financial Officer of the
Company, no outside business activities which require the devo-
tion of substantial amounts of the Executive's time and (iv)
the place for the performance of the Executive's services shall
be the principal executive offices of the Company which shall
be in the New York City metropolitan area, subject to such
reasonable travel as may be appropriate or required in the
performance of the Executive's duties in the business of the
Company. The foregoing shall be subject to the Company's
written policies, as in effect from time to time, regarding
vacations, holidays, illness and the like and shall not prevent
the Executive from devoting such time to his personal affairs
as shall not interfere with the performance of his duties
hereunder, provided that the Executive complies with the
provisions of Sections 9 and 10 and any of the Company's
written policies on conflicts of interest and service as a
director of another corporation, partnership, trust or other
entity ("Entity").
3. Compensation.
3.1. Base Salary. The Company shall pay or
cause to be paid to the Executive a base salary of not less
than $325,000 per annum during the term of employment (the
"Base Salary"). The Company may increase, but not decrease,
the Base Salary at any time and from time to time during the
term of employment and upon each such increase the term "Base
Salary" shall mean such increased amount. Base Salary shall be
payable in monthly or more frequent installments in accordance
with the Company's then current practices and policies with
respect to senior executives. For the purposes of this
Agreement "senior executives" shall mean executives of the
Company at the same executive level as the Executive.
3.2. Bonus. In addition to Base Salary, the
Executive may be entitled to receive during the term of
employment an annual cash bonus based on the performance of the
Company and of the Executive. Bonuses for senior executives
may be determined by the Compensation Committee of the
Company's Board of Directors or by the Chief Executive Officer
or the Chief Financial Officer of the Company. Such determi-
nation with respect to the amount, if any, of annual bonuses to
be paid to the Executive under this Agreement shall be final
and conclusive except as specifically provided otherwise in
this Agreement. Payments of any bonus compensation under this
Section 3.2 shall be made in accordance with the Company's then
current practices and policies with respect to senior
executives, but in no event later than 90 days after the end of
the period for which the bonus is payable.
3.3. Deferred Compensation. In addition to
Base Salary and bonus as set forth in Sections 3.1 and 3.2, the
Executive shall be credited with deferred compensation which
shall be determined and paid out as provided in this Agreement,
including Annex A hereto. Subject to the provisions of Sec-
tion A.7 of Annex A, during the term of employment, the Company
shall credit to a special account maintained on the Company's
books for the Executive (the "Account"), monthly, an amount
equal to 50% of one-twelfth of the Executive's then current
Base Salary. If a lump sum payment is made pursuant to Section
4.2.2 or 4.2.3, the Company shall credit to the Account at the
time of such payment an amount equal to 50% of the Base Salary
portion of such lump sum payment. The Account shall be
maintained by the Company in accordance with the terms of this
Agreement, including Annex A, until the full amount which the
Executive is entitled to receive therefrom has been paid in full.
3.4. Deferred Bonus. In addition to any other
deferred bonus plan in which the Executive may be entitled to
participate, the Executive may elect by written notice
delivered to the Company at least 15 days prior to the
commencement of any calendar year during the term of employment
during which an annual cash bonus would otherwise accrue or to
which it would relate, to defer payment of and to have the
Company credit to the Account all or any portion of the
Executive's bonus for such year. Any such election shall only
apply to the calendar year during the term of employment with
respect to which such election is made and a new election shall
be required with respect to each successive calendar year
during the term of employment.
3.5. Prior Account. The parties confirm that
the Company has maintained a deferred compensation account (the
"Prior Account") for the Executive in accordance with the prior
Agreement. The Prior Account shall be promptly transferred to,
and shall for all purposes be deemed part of, the Account and
shall continue to be maintained by the Company in accordance
with this Agreement. All prior credits to the Prior Account
shall be deemed to be credits made under this Agreement, all
"Account Retained Income" thereunder shall be deemed to be
Account Retained Income under this Agreement and all increases
or decreases to the Prior Account as a result of income, gains,
losses and other changes shall be deemed to have been made
under this Agreement.
3.6. Reimbursement. The Company shall
reasonably promptly pay or reimburse the Executive for all
reasonable travel, entertainment and other business expenses
actually incurred or paid by the Executive during the term of
employment in the performance of his services under this
Agreement provided such expenses are incurred or paid in
accordance with the Company's then current written practices
and policies with respect to senior executives of the Company
and upon presentation of expense statements or vouchers or such
other supporting information as the Company may customarily
require of its senior executives.
3.7. No Anticipatory Assignments. Except as
specifically contemplated in Section 12.8 or under the life
insurance policies and benefit plans referred to in Sections 7
and 8, respectively, neither the Executive, his legal
representative nor any beneficiary designated by him shall have
any right, without the prior written consent of the Company, to
assign, transfer, pledge, hypothecate, anticipate or commute to
any person or Entity any payment due in the future pursuant to
any provision of this Agreement, and any attempt to do so shall
be void and shall not be recognized by the Company.
3.8. Indemnification. The Executive shall be
entitled throughout the term of employment in his capacity as
an officer or director of the Company or any of its
subsidiaries or a member of the Board of Representatives or
other governing body of any partnership or joint venture in
which the Company has an equity interest (and after the term of
employment, to the extent relating to his service as such
officer, director or member) to the benefit of the
indemnification provisions contained on the date hereof in the
Certificate of Incorporation and By-Laws of the Company (not
including any amendments or additions after the date of
execution hereof that limit or narrow, but including any that
add to or broaden, the protection afforded to the Executive by
those provisions), to the extent not prohibited by applicable
law at the time of the assertion of any liability against the
Executive.
4. Termination.
4.1. Termination for Cause. The Company may
terminate the term of employment and all of the Company's
obligations hereunder, other than its obligations set forth
below in this Section 4.1, for "cause" but only if the term of
employment has not previously been terminated pursuant to any
other provision of this Agreement. Termination by the Company
for "cause" shall mean termination by action of the Company's
Board of Directors, or a committee thereof, because of the
Executive's conviction (treating a nolo contendere plea as a
conviction) of a felony (whether or not any right to appeal has
been or may be exercised) or willful refusal without proper
cause to perform his obligations under this Agreement or
because of the Executive's breach of any of the covenants
provided for in Section 9. Such termination shall be effected
by written notice thereof delivered by the Company to the
Executive and shall be effective as of the date of such notice;
provided, however, that if (i) such termination is because of
the Executive's willful refusal without proper cause to perform
any one or more of his obligations under this Agreement, (ii)
such notice is the first such notice of termination for any
reason delivered by the Company to the Executive under this
Section 4.1, and (iii) within 15 days following the date of
such notice the Executive shall cease his refusal and shall use
his best efforts to perform such obligations, the termination
shall not be effective.
In the event of such termination by the Company
for cause, without prejudice to any other rights or remedies
that the Company may have at law or in equity, the Company
shall have no further obligations to the Executive other than
(i) to pay Base Salary and make credits of deferred
compensation to the Account accrued through the effective date
of termination, (ii) to pay any annual bonus pursuant to Sec-
tion 3.2 to the Executive in respect of the calendar year prior
to the calendar year in which such termination is effective, in
the event such annual bonus has been determined but not yet
paid as of the date of such termination and (iii) with respect
to any rights the Executive has in respect of amounts credited
to the Account or pursuant to any insurance or other benefit
plans or arrangements of the Company maintained for the benefit
of its senior executives. The Executive hereby disclaims any
right to receive a pro rata portion of the Executive's annual
bonus with respect to the year in which such termination
occurs. The last sentence of Section 3.3 and the provisions of
Sections 3.8, 8.2, 8.3 and 9 through 12 and Annex A shall
survive any termination pursuant to this Section 4.1.
4.2. Termination by Executive for Material
Breach by the Company and Termination by the Company Without
Cause. Unless previously terminated pursuant to any other
provision of this Agreement and unless a Disability Date has
occurred and the disability period remains in effect, the
Executive shall have the right, exercisable by written notice
to the Company, to terminate the term of employment effective
15 days after the giving of such notice, if, at the time of the
giving of such notice, the Company shall be in material breach
of its obligations under this Agreement; provided, however,
that, with the exception of clause (i) below, this Agreement
shall not so terminate if such notice is the first such notice
of termination delivered by the Executive pursuant to this
Section 4.2 and within such 15-day period the Company shall
have cured all such material breaches of its obligations under
this Agreement. A material breach by the Company shall
include, but not be limited to, (i) the Company failing to
cause the Executive to retain the title specified in the first
sentence of Section 2 or a more senior title; (ii) the
Executive being required to report to persons other than those
specified in Section 2; (iii) the Company violating the
provisions of Section 2 with respect to the Executive's
authority, functions, duties, powers or responsibilities
(whether or not accompanied by a change in title); (iv) the
Company requiring the Executive's primary services to be
rendered at a place other than at the Company's principal
executive offices in the New York City metropolitan area; and
(v) the Company failing to cause the successor to all or
substantially all of the business and assets of the Company
expressly to assume the obligations of the Company under this
Agreement.
The Company shall have the right, exercisable by
written notice to the Executive, to terminate the Executive's
employment under this Agreement without cause, effective at
least 30 days after the giving of such notice, which notice
shall specify the effective date of such termination.
In the event of a termination pursuant to this
Section 4.2, the Executive shall be entitled to elect by
delivery of written notice to the Company, within 30 days after
written notice of such termination is given pursuant to this
Section 4.2, either (A) to cease being an employee of the
Company and receive a lump sum payment as provided in Section
4.2.2 or (B) to remain an employee of the Company as provided
in Section 4.2.3. After the Executive makes such election, the
following provisions shall apply:
4.2.1. Regardless of the election made by the
Executive pursuant to the preceding paragraph, (i) after the
effective date of such termination, the Executive shall have no
further obligations or liabilities to the Company whatsoever,
except that Sections 4.4 and 4.5 and Sections 6 through 12
shall survive such termination, and (ii) the Executive shall be
entitled to receive any earned and unpaid Base Salary and
deferred compensation accrued through effective date of such
termination and a pro rata portion of the Executive's annual
bonus for the year in which such termination occurs through the
date of such termination based on the average of the regular
annual bonus amounts (excluding the amount of any special or
spot bonuses) in respect of the two calendar years during the
most recent five calendar years for which the regular annual
bonus received by the Executive from the Company was the
greatest, all or a portion of which pro rata bonus will be
credited to the Account if the Executive previously elected to
defer all or any portion of the Executive's bonus for such year
pursuant to Section 3.4.
4.2.2. In the event the Executive shall make
the election provided in clause (A) above, the Company shall
pay to the Executive as damages in a lump sum within 30 days
thereafter (provided that if the Executive was named in the
compensation table in the Company's then most recent proxy
statement, such lump sum payment shall be made within 30 days
after the end of the calendar year in which such notice of
termination is given) an amount (discounted as provided in the
immediately following sentence) equal to all amounts otherwise
payable pursuant to Sections 3.1, 3.2, 3.3 and 13 for the year
in which such termination occurs and for each subsequent year
of the term of employment and the Advisory Period (assuming
that annual bonuses are required to be paid for each such year
of the term of employment, with each such annual bonus being
equal to the average of the regular annual bonus amounts
(excluding the amount of any special or spot bonuses) in
respect of the two calendar years during the most recent five
calendar years for which the regular annual bonus received by
the Executive from the Company was the greatest (assuming that
no portion of such bonus is deferred pursuant to Section 3.4),
with the bonus for any partial calendar year appropriately
annualized). Any payments required to be made to the Executive
pursuant to this Section 4.2.2 upon such termination in respect
of Sections 3.1, 3.2 and 13 and the credit to the Account
provided for in the penultimate sentence of Section 3.3 shall
be discounted to present value as of the date of payment from
the times at which such amounts would have become payable
absent any such termination at an annual discount rate for the
relevant periods equal to 120% of the "applicable Federal rate"
(within the meaning of Section 1274(d) of the Internal Revenue
Code of 1986 (the "Code")), in effect on the date of such
termination, compounded semi-annually, the use of which rate is
hereby elected by the parties hereto pursuant to Treas. Reg.
Section 1.280G-1 Q/A 32 (provided that, in the event such
election is not permitted under Section 280G of the Code and
the regulations thereunder, such other rate determined as of
such other date as is applicable for determining present value
under Section 280G of the Code shall be used).
4.2.3. In the event the Executive shall
make the election provided in clause (B) above, the term of
employment shall continue and the Executive shall remain an
employee of the Company until the end of the term of employment
and the Advisory Period and during such period the Executive
shall be entitled to receive, whether or not he becomes
disabled during such period but subject to Section 6, (a) Base
Salary at an annual rate equal to his Base Salary in effect
immediately prior to the notice of termination for each year
through the term of employment, (b) an annual bonus (all or a
portion of which may be deferred by the Executive pursuant to
Section 3.4) in respect of each calendar year or portion
thereof during the term of employment (in which case a pro rata
portion of such annual bonus will be payable) during such
period equal to the average of the regular annual bonus amounts
(excluding the amount of any special or spot bonuses) in
respect of the two calendar years during the most recent five
calendar years for which the regular annual bonus received by
the Executive from the Company was the greatest (with any
partial calendar year bonus appropriately annualized) as
provided in Section 3.2, (c) deferred compensation as provided
in Section 3.3 and (d) Advisory Period compensation as provided
in Section 13. Except as provided in the next sentence, if the
Executive accepts full-time employment with any other Entity
during such period or notifies the Company in writing of his
intention to terminate his status as an employee during such
period, then the term of employment and the Advisory Period
shall cease and the Executive shall cease to be an employee of
the Company effective upon the commencement of such employment
or the effective date of such termination as specified by the
Executive in such notice, whichever is applicable, and the
Executive shall be entitled to receive as damages in a lump sum
within 30 days after such commencement or such effective date
(provided that if the Executive was named in the compensation
table in the Company's then most recent proxy statement, such
lump sum payment shall be made within 30 days after the end of
the calendar year in which such commencement or effective date
occurred) an amount (discounted as provided in the second
sentence of Section 4.2.2 except that the "applicable Federal
rate" shall be determined as of the date the Executive shall
cease to be an employee of the Company) for the balance of the
Base Salary, deferred compensation (which shall be credited to
the Account as provided in the penultimate sentence of Section
3.3), regular annual bonuses (assuming no deferral pursuant to
Section 3.4) and Advisory Period compensation the Executive
would have been entitled to receive pursuant to this Section
4.2.3 had the Executive remained on the Company's payroll until
the end of the Advisory Period. Notwithstanding the preceding
sentence, if the Executive accepts employment with any
not-for-profit Entity, then the Executive shall be entitled to
remain an employee of the Company and receive the payments as
provided in the first sentence of this Section 4.2.3; and if
the Executive accepts full-time employment with any affiliate
of the Company, then the payments provided for in this Section
4.2.3 and the term of employment and the Advisory Period shall
cease and the Executive shall not be entitled to any such lump
sum payment. For purposes of this Agreement, the term
"affiliate" shall mean any Entity which, directly or
indirectly, controls, is controlled by, or is under common
control with, the Company.
4.3. Office Facilities. In the event the
Executive shall make the election provided in clause (B) of
Section 4.2, then for the period beginning on the day the
Executive makes such election and ending one year thereafter,
the Company shall, without charge to the Executive, make
available to the Executive office space at the Executive's
principal job location immediately prior to his termination of
employment, or other location reasonably close to such
location, together with secretarial services, office
facilities, services and furnishings, in each case reasonably
appropriate to an employee of the Executive's position and
responsibilities prior to such termination of employment but
taking in account the Executive's reduced need for such office
space, secretarial services and office facilities, services and
furnishings as a result of the Executive no longer being a
full-time employee.
4.4. Release. In partial consideration for the
Company's obligation to make the payments described in Section
4.2, the Executive shall execute and deliver to the Company a
release in substantially the form attached hereto as Annex B.
The Company shall deliver such release to the Executive within
10 days after the written notice of termination is delivered
pursuant to Section 4.2 and the Executive shall execute and
deliver such release to the Company within 21 days after
receipt thereof. If the Executive shall fail to execute and
deliver such release to the Company within such 21 day period,
or if the Executive shall revoke his consent to such release as
provided therein, the Executive's term of employment shall
terminate as provided in Section 4.2, but the Executive shall
receive, in lieu of the payments provided for in said Section
4.2, a lump sum cash payment in an amount determined in
accordance with the written personnel policies of the Company
relating to notice and severance then generally applicable to
employees with length of service and compensation level of the
Executive.
4.5. Mitigation. In the event of termination
of the term of employment pursuant to Section 4.2, the
Executive shall not be required to seek other employment in
order to mitigate his damages hereunder; provided, however,
that, notwithstanding the foregoing, if there are any damages
hereunder by reason of the events of termination described
above which are "contingent on a change" (within the meaning of
Section 280G(b)(2)(A)(i) of the Code), the Executive shall be
required to mitigate such damages hereunder, including any such
damages theretofore paid, but not in excess of the extent, if
any, necessary to prevent the Company from losing any tax
deductions to which it otherwise would be entitled in
connection with such damages if they were not so "contingent on
a change". In addition to any obligation under the preceding
sentence, and without duplication of any amounts required to be
paid to the Company thereunder, if any such termination occurs
and the Executive, whether or not required to mitigate his
damages under the preceding sentence, thereafter obtains other
employment with any Entity other than a not-for-profit Entity,
the total cash salary and bonus received in connection with
such other employment, whether paid to him or deferred for his
benefit, for services through April 30, 2003 up to an amount
equal to (x) the discounted lump sum payment received by or for
the account of the Executive with respect to Base Salary,
annual bonus and deferred compensation under Section 3 and
Advisory Period compensation under Section 13 for such period,
minus (y) the amount of severance the Executive would have
received in accordance with the personnel policies of the
Company if the Executive had been job eliminated, shall reduce,
pro tanto, any amount which the Company would otherwise be
required to pay to the Executive as a result of such
termination and, to the extent amounts have theretofore been
paid to him as a result of such termination, such cash salary
and bonus shall be paid over to the Company as received with
respect to such period, but the provisions of this sentence
shall not apply to any type of equity interest, bonus unit,
phantom or restricted stock, stock option, stock appreciation
right or similar benefit received as a result of such other
employment. With respect to the preceding sentences, any
payments or rights to which the Executive is entitled by reason
of a termination pursuant to Section 4.2 shall be considered as
damages hereunder. With respect to the second preceding
sentence, the Executive shall in no event be required to pay
the Company with respect to any calendar year more than the
discounted amount received by him or credited to the Account
with respect to Base Salary, annual bonus, deferred
compensation under Section 3 and Advisory Period compensation
under Section 13 for such year. Any obligation of the
Executive to mitigate his damages pursuant to this Section 4.5
shall not be a defense or offset to the Company's obligation to
pay the Executive in full the amounts provided in Section 4.2.2
or 4.2.3, as the case may be, at the time provided therein or
the timely and full performance of any of the Company's other
obligations under this Agreement.
4.6. Payments. So long as the Executive
remains on the payroll of the Company or any subsidiary of the
Company, payments of salary, deferred compensation and bonus
required to be made pursuant to Section 4.2 shall be made at
the same times as such payments are made to senior executives
of the Company or such subsidiary.
5. Disability. If during the term of employment or the
Advisory Period and prior to any termination of this Agreement
under Section 4.2, the Executive shall become physically or
mentally disabled, whether totally or partially, so that he is
prevented from performing his usual duties for a period of six
consecutive months, or for shorter periods aggregating six
months in any twelve-month period, the Company shall,
nevertheless, continue to pay the Executive his full
compensation and continue to credit the Account, when otherwise
due, as provided in Section 3 and 13 and Annex A, through the
last day of the sixth consecutive month of disability or the
date on which the shorter periods of disability shall have
equaled a total of six months in any twelve-month period (such
last day or date being referred to herein as the "Disability
Date"). If the Executive has not resumed his usual duties on
or prior to the Disability Date, the Company shall pay the
Executive a pro rata bonus for the year in which the Disability
Date occurs and shall pay the Executive annual disability
benefits (a) for the balance of the term of employment in an
amount equal to 75% of (i) the Executive's Base Salary at the
time the Executive becomes disabled (and this reduced amount
shall also be deemed to be the Base Salary for purposes of
determining the amounts to be credited to his Account pursuant
to Section 3.3 and Annex A as further disability benefits) and
(ii) the average of the regular annual bonuses (excluding the
amount of any special or spot bonuses) in respect of the two
calendar years during the most recent five calendar years for
which the annual bonus received by the Executive from the
Company was the greatest (all or a portion of which may be
deferred by the Executive pursuant to Section 3.4 and (b) for
the balance of the Advisory Period in an amount equal to
$350,000 per annum). If during the term of employment and
subsequent to the Disability Date the Executive shall fully
recover from his disability, the Company shall have the right
(exercisable within 60 days after notice from the Executive of
such recovery), but not the obligation, to restore the
Executive to full-time service at full compensation. If the
Company elects to restore the Executive to full-time service,
then this Agreement shall continue in full force and effect in
all respects and the term of employment shall not be extended
by virtue of the occurrence of the disability. If the Company
elects not to restore the Executive to full-time service, the
Executive shall be entitled to obtain other employment,
subject, however, to the following: (i) the Executive shall be
obligated to perform advisory services during any balance of
the term of employment and Advisory Period; and (ii) the
provisions of Sections 9 and 10 shall continue to apply to the
Executive during such period. The advisory services referred
to in clause (i) of the immediately preceding sentence shall
consist of rendering advice concerning the business, affairs
and management of the Company as requested by the Chief
Executive Officer, the President or the Chief Financial Officer
of the Company but the Executive shall not be required to
devote more than five days (up to eight hours per day) each
month to such services, which shall be performed at a time and
place mutually convenient to both parties. Any income from
such other employment shall not be applied to reduce the
Company's obligations under this Agreement. The Company shall
be entitled to deduct from all payments to be made to the
Executive during any disability period pursuant to this Section
5 an amount equal to all disability payments received by the
Executive (but only with respect to that portion of the
disability period occurring during the term of employment and
the Advisory Period) from Workmen's Compensation, Social
Security and disability insurance policies maintained by the
Company; provided, however, that for so long as, and to the
extent that, proceeds paid to the Executive from such dis-
ability insurance policies are not includible in his income for
federal income tax purposes, the Company's deduction with
respect to such payments shall be equal to the product of
(i) such payments and (ii) a fraction, the numerator of which
is one and the denominator of which is one less the maximum
marginal rate of federal income taxes applicable to individuals
at the time of receipt of such payments. All payments made
under this Section 5 after the Disability Date are intended to
be disability payments, regardless of the manner in which they
are computed. Except as otherwise provided in this Section 5,
the term of employment and the Advisory Period shall continue
during the disability period and the Executive shall be
entitled to all of the rights and benefits provided for in this
Agreement except that, Section 4.2 shall not apply during the
disability period and unless the Company has restored the
Executive to fill-time service at full compensation prior to
April 30, 2002, the term of employment and the Advisory Period
shall end as provided in this Agreement and the Executive shall
cease to be an employee of the Company at the end of the
Advisory Period and shall not be entitled to notice and
severance or to receive or be paid for any accrued vacation
time or unused sabbatical.
6. Death. Upon the death of the Executive during
the term of employment or the Advisory Period, this Agreement
and all obligations of the Company to make any payments under
Sections 3, 4, 5 and 13 shall terminate except that (i) the
Executive's estate (or a designated beneficiary) shall be
entitled to receive, to the extent being received by the
Executive immediately prior to his death, Base Salary and
deferred compensation or Advisory Period compensation, as
applicable, to the last day of the month in which his death
occurs and if the Executive dies during the term of employment,
shall be entitled to receive bonus compensation (at the time
bonuses are normally paid) based on the average of the regular
annual bonuses (excluding the amount of any special or spot
bonuses) in respect of the two calendar years during the most
recent five calendar years for which the annual bonus received
by the Executive from the Company was the greatest, but
prorated according to the number of whole or partial months the
Executive was employed by the Company in such calendar year,
and (ii) the Account shall be liquidated and revalued as pro-
vided in Annex A as of the date of the Executive's death
(except that all taxes shall be computed and charged to the
Account as of such date of death to the extent not theretofore
so computed and charged) and the entire balance thereof (plus
any amount due under the last paragraph of Section A.6 of Annex
A) shall be paid to the Executive's estate (or a designated
beneficiary) in a single payment not later than 75 days follow-
ing such date of death.
7. Life Insurance. The Company shall continue to
maintain $1,500,000 face amount of split ownership life
insurance on the life of the Executive, to be owned by the
Company or the trustees of a trust for the benefit of the
Executive's spouse and/or descendants. The Company shall pay
all premiums on such policy and shall maintain such policy
(without reduction of the face amount of the coverage) until
the Executive reaches age 65, whether or not the Executive is
an employee of the Company or any of its affiliates; provided,
however, that the Company's obligation to pay such premiums
shall terminate on the date the Executive's employment with the
Company is terminated for cause pursuant to Section 4.1 or the
Executive terminates his employment in breach of this
Agreement. The Company shall not borrow from the cash value of
such policy. The Executive shall be entitled from time to time
to designate the beneficiary or beneficiaries of such policy
which may include a trust. At the death of the Executive, or
on the earlier surrender of such policy by the owner, the
Executive agrees that the Executive's estate or the owner of
the policy shall promptly pay to the Company an amount equal to
the premiums on such policy paid by the Company (net of (i) tax
benefits, if any, to the Company in respect of payments of such
premiums, (ii) any amounts payable by the Company which had
been paid by or on behalf of the Executive with respect to such
insurance, (iii) dividends received by the Company in respect
of such premiums, but only to the extent such dividends are not
used to purchase additional insurance on the life of the
Executive, and (iv) any unpaid borrowings by the Company on the
policy), whether before, during or after the term of this
Agreement. Unless the policy is owned by a trust, the Company
shall own the policy and shall provide by endorsement or
collateral assignment as it may deem appropriate for the
payment of benefits on the death of the Executive. If the
owner of the policy is a trust, such owner shall execute,
deliver and maintain a customary split dollar insurance and
collateral assignment form, assigning to the Company the
proceeds of such policy but only to the extent necessary to
secure the reimbursement obligation contained in the preceding
sentence. At the time the Executive reaches age 65, the
Company shall offer the Executive the opportunity to purchase
such policy for the lesser of the net premiums paid by the
Company or the cash surrender value of such policy. The
provisions of this Section 7 shall be in addition to any other
insurance normally provided by the Company under any group policy.
8. Other Benefits.
8.1. General Availability. To the extent that
(a) the Executive is eligible under the general provisions
thereof and (b) the Company maintains such plan or program for
the benefit of its senior executives, during the term of
employment and so long as the Executive is an employee of the
Company, the Executive shall be eligible to participate in any
pension, profit-sharing, stock option or similar plan or
program and in any group insurance, hospitalization, medical,
dental, accident, disability or similar plan or program of the
Company now existing or established hereafter. In addition,
the Executive shall be entitled during the term of employment
and so long as the Executive is an employee of the Company, to
receive other benefits generally available to all senior
executives of the Company to the extent the Executive is eligi-
ble under the general provisions thereof, including, without
limitation, to the extent maintained in effect by the Company
for its senior executives, an automobile allowance and
financial services.
8.2. Benefits After a Termination or
Disability. During the period the Executive remains on the
payroll of the Company after a termination pursuant to Section
4.2 and during the Disability Period the Executive shall
continue to be eligible to participate in the benefit plans and
to receive the benefits required to be provided to the
Executive under Section 8.1 to the extent such benefits are
maintained in effect by the Company for its senior executives;
provided, however, the Executive shall not be entitled to any
additional awards or grants under any stock option, restricted
stock or other stock based incentive plan. The Executive shall
continue to be an employee of the Company for purposes of any
stock option and restricted shares agreements and any other
incentive plan awards during the term of employment and until
such time as the Executive shall leave the payroll of the
Company. At the time the Executive's term of employment with
the Company terminates and he leaves the payroll of the Company
pursuant to the provisions of Section 4.1, 4.2, 5, 6 or 13, the
Executive's rights to benefits and payments under any benefit
plans or any insurance or other death benefit plans or
arrangements of the Company or under any stock option,
restricted stock, stock appreciation right, bonus unit,
management incentive or other plan of the Company shall be
determined, subject to the other terms and provisions of this
Agreement, in accordance with the terms and provisions of such
plans and any agreements under which such stock options,
restricted stock or other awards were granted; provided,
however, that notwithstanding the foregoing or any more
restrictive provisions of any such plan or agreement, if the
Executive leaves the payroll of the Company as a result of a
termination pursuant to Section 4.2, then all stock options
granted to the Executive by the Company shall (i) become
immediately exercisable at the time the Executive shall leave
the payroll of the Company pursuant to Section 4.2 and (ii)
shall remain exercisable (but not beyond the term thereof)
during the remainder of the term of employment and the Advisory
Period and for a period of three months thereafter.
8.3. Payments in Lieu of Other Benefits. In
the event the term of employment and the Executive's employment
with the Company is terminated pursuant to Sections 4.1, 4.2,
5, 6 or 13 (and regardless of whether the Executive elects
clause (A) or (B) as provided in Section 4.2), the Executive
shall not be entitled to notice and severance or to be paid for
any accrued vacation time or unused sabbatical, the payments
provided for in such Sections being in lieu thereof.
8.4. Retirement Benefits. Upon the Executive's
termination of employment for any reason, except by the Company
for cause pursuant to Section 4.1 and except for a termination
by the Executive in breach of this Agreement, the Company will
calculate the retirement benefits to which the Executive is
entitled under the Time Warner Employees' Pension Plan, any
supplemental retirement or excess benefit plan maintained by
the Company or any of its affiliates or any successor plans
thereto (hereinafter collectively referred to as the "Pension
Plan"), by crediting the Executive with an extra .9
(nine-tenths) of a year of service for each year the Executive
is employed by the Company up to a maximum of nine additional
years of service. Such additional pension benefits shall be
paid at the same times and in the same manner as shall be
elected by the Executive or his beneficiary for payment of
amounts under the Pension Plan.
9. Protection of Confidential Information; Non-Compete.
The provisions of Section 9.2 shall continue to apply
through the latest of (i) the end of the Advisory Period, (ii)
the date the Executive ceases to be an employee of the Company
and leaves the payroll of the Company for any reason and (iii)
twelve months after the termination of the Executive's
employment with the Company pursuant to Section 4.1 or 4.2.
The provisions of Sections 9.1 and 9.3 shall continue to apply
until three years after the latest of the events described in
the preceding sentence.
9.1. Confidentiality Covenant. The Executive
acknowledges that his employment by the Company (which, for
purposes of this Section 9 shall mean Time Warner Inc. and its
affiliates) will, throughout the term of employment, bring him
into close contact with many confidential affairs of the
Company, including information about costs, profits, markets,
sales, products, key personnel, pricing policies, operational
methods, technical processes and other business affairs and
methods and other information not readily available to the
public, and plans for future development. The Executive
further acknowledges that the services to be performed under
this Agreement are of a special, unique, unusual, extraordinary
and intellectual character. The Executive further acknowledges
that the business of the Company is international in scope,
that its products are marketed throughout the world, that the
Company competes in nearly all of its business activities with
other Entities that are or could be located in nearly any part
of the world and that the nature of the Executive's services,
position and expertise are such that he is capable of competing
with the Company from nearly any location in the world. In
recognition of the foregoing, the Executive covenants and agrees:
9.1.1. The Executive shall keep secret all
confidential matters of the Company and shall not intentionally
disclose such matters to anyone outside of the Company, either
during or after the term of employment, except with the
Company's written consent, provided that (i) the Executive
shall have no such obligation to the extent such matters are or
become publicly known other than as a result of the Executive's
breach of his obligations hereunder and (ii) the Executive may,
after giving prior notice to the Company to the extent
practicable under the circumstances, disclose such matters to
the extent required by applicable laws or governmental
regulations or judicial or regulatory process;
9.1.2. The Executive shall deliver
promptly to the Company on termination of his employment by the
Company, or at any other time the Company may so request, at
the Company's expense, all memoranda, notes, records, reports
and other documents (and all copies thereof) relating to the
Company's business, which he obtained while employed by, or
otherwise serving or acting on behalf of, the Company and which
he may then possess or have under his control; and
9.1.3. If the term of employment is
terminated pursuant to Section 4.1 or 4.2, for a period of one
year after such termination, without the prior written consent
of the Company, the Executive shall not employ, and shall not
cause any Entity of which he is an affiliate to employ, any
person who was a full-time exempt employee of the Company at
the date of such termination or within six months prior thereto.
9.2. Non-Compete. The Executive shall not,
directly or indirectly, without the prior written consent of
the Chief Executive Officer or the President of the Company,
render any services to any person or Entity or acquire any
interest of any type in any Entity, that might be deemed in
competition with the Company; provided, however, that the
foregoing shall not be deemed to prohibit the Executive from
(a) acquiring, solely as an investment and through market pur-
chases, securities of any Entity which are registered under
Section 12(b) or 12(g) of the Securities Exchange Act of 1934
and which are publicly traded, so long as he is not part of any
control group of such Entity and such securities, if converted,
do not constitute more than one percent (1%) of the outstanding
voting power of that Entity, (b) acquiring, solely as an
investment, any securities of an Entity (other than an Entity
that has outstanding securities covered by the preceding
clause (a)) so long as he remains a passive investor in such
Entity and does not become part of any control group thereof
and so long as such Entity is not, directly or indirectly, in
competition with the Company, or (c) serving as a director of
any Entity that is not in competition with the Company. For
purposes of the foregoing, a person or Entity shall be deemed
to be in competition with the Company if such person or it
engages in any line of business that is substantially the same
as either (i) any line of operating business which the Company
engages in, conducts or, to the knowledge of the Executive, has
definitive plans to engage in or conduct, or (ii) any operating
business that is engaged in or conducted by the Company and as
to which, to the knowledge of the Executive, the Company
covenants in writing, in connection with the disposition of
such business, not to compete therewith.
9.3. Specific Remedy. In addition to such
other rights and remedies as the Company may have at equity or
in law with respect to any breach of this Agreement, if the
Executive commits a material breach of any of the provisions of
Section 9.1, the Company shall have the right and remedy to
have such provisions specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any
such breach or threatened breach will cause irreparable injury
to the Company and that money damages will not provide an
adequate remedy to the Company.
9.4. Liquidated Damages. If the Executive
commits a material breach of the provisions of Section 9.2, the
Executive shall pay to the Company as liquidated damages an
amount equal to two and one-half times the Executive's then
current Base Salary, or if the Executive is not employed by the
Company at the time of such breach, an amount equal to two and
one-half times the most recent Base Salary paid to the
Executive by the Company. The Company shall be entitled to
offset any amounts owed by the Executive to the Company under
this Section 9.4 against any amounts owed by the Company to the
Executive under any provision of this Agreement or otherwise,
including without limitation, amounts payable to the Executive
under Sections 4.2. The Company and the Executive agree that
it is impossible to determine with any reasonable accuracy the
amount of prospective damages to the Company upon a breach of
Section 9.2 by the Executive and further agree that the damages
set forth in this Section 9.4 are reasonable, and not a
penalty, based upon the facts and circumstances of the parties
and with due regard to future expectations.
10. Ownership of Work Product. The Executive
acknowledges that during the term of employment and the
Advisory Period, he may conceive of, discover, invent or create
inventions, improvements, new contributions, literary property,
material, ideas and discoveries, whether patentable or
copyrightable or not (all of the foregoing being collectively
referred to herein as "Work Product"), and that various
business opportunities shall be presented to him by reason of
his employment by the Company. The Executive acknowledges that
all of the foregoing shall be owned by and belong exclusively
to the Company and that he shall have no personal interest
therein, provided that they are either related in any manner to
the business (commercial or experimental) of the Company, or
are, in the case of Work Product, conceived or made on the
Company's time or with the use of the Company's facilities or
materials, or, in the case of business opportunities, are
presented to him for the possible interest or participation of
the Company. The Executive shall (i) promptly disclose any
such Work Product and business opportunities to the Company;
(ii) assign to the Company, upon request and without additional
compensation, the entire rights to such Work Product and
business opportunities; (iii) sign all papers necessary to
carry out the foregoing; and (iv) give testimony in support of
his inventorship or creation in any appropriate case. The
Executive agrees that he will not assert any rights to any Work
Product or business opportunity as having been made or acquired
by him prior to the date of this Agreement except for Work
Product or business opportunities, if any, disclosed to and
acknowledged by the Company in writing prior to the date hereof.
11. Notices. All notices, requests, consents and
other communications required or permitted to be given under
this Agreement shall be effective only if given in writing and
shall be deemed to have been duly given if delivered personally
or sent by prepaid telegram, or mailed first-class, postage
prepaid, by registered or certified mail, as follows (or to
such other or additional address as either party shall
designate by notice in writing to the other in accordance herewith):
11.1. If to the Company:
Time Warner Inc.
75 Rockefeller Plaza
New York, New York 10019
Attention: Chief Executive Officer
(with a copy, similarly addressed
but Attention: General Counsel)
11.2. If to the Executive, to his residence
address set forth on the records of the Company.
12. General.
12.1. Governing Law. This Agreement shall be
governed by and construed and enforced in accordance with the
substantive laws of the State of New York applicable to
agreements made and to be performed entirely in New York.
12.2. Captions. The section headings contained
herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
12.3. Entire Agreement. This Agreement,
including Annexes A and B, sets forth the entire agreement and
understanding of the parties relating to the subject matter of
this Agreement and supersedes all prior agreements,
arrangements and understandings, written or oral, between the
parties, including without limitation, the Prior Agreement.
12.4. No Other Representations. No representa-
tion, promise or inducement has been made by either party that
is not embodied in this Agreement, and neither party shall be
bound by or be liable for any alleged representation, promise
or inducement not so set forth.
12.5. Assignability. This Agreement and the
Executive's rights and obligations hereunder may not be
assigned by the Executive. The Company may assign its rights
together with its obligations hereunder, in connection with any
sale, transfer or other disposition of all or substantially all
of its business and assets; and such rights and obligations
shall inure to, and be binding upon, any successor to all or
substantially all of the business and assets of the Company,
whether by merger, purchase of stock or assets or otherwise.
The Company shall cause such successor expressly to assume such
obligations.
12.6. Amendments; Waivers. This Agreement may
be amended, modified, superseded, cancelled, renewed or
extended and the terms or covenants hereof may be waived only
by written instrument executed by both of the parties hereto,
or in the case of a waiver, by the party waiving compliance.
The failure of either party at any time or times to require
performance of any provision hereof shall in no manner affect
such party's right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant
contained in this Agreement, in any one or more instances,
shall be deemed to be, or construed as, a further or continuing
waiver of any such breach, or a waiver of the breach of any
other term or covenant contained in this Agreement.
12.7. Resolution of Disputes. Any dispute or
controversy arising with respect to this Agreement may be
referred by either party to ENDISPUTE for resolution in
arbitration in accordance with the rules and procedures of
ENDISPUTE. Any such proceedings shall take place in New York
City before a single arbitrator (rather than a panel of
arbitrators), pursuant to any streamlined or expedited (rather
than a comprehensive) arbitration process, before a nonjudicial
(rather than a judicial) arbitrator, and in accordance with an
arbitration process which, in the judgment of such arbitrator,
shall have the effect of reasonably limiting or reducing the
cost of such arbitration. The resolution of any such dispute
or controversy by the arbitrator appointed in accordance with
the procedures of ENDISPUTE shall be final and binding.
Judgment upon the award rendered by such arbitrator may be
entered in any court having jurisdiction thereof, and the
parties consent to the jurisdiction of the New York courts for
this purpose. The prevailing party shall be entitled to
recover the costs of arbitration (including reasonable
attorneys fees and the fees of experts) from the losing party.
If at the time any dispute or controversy arises with respect
to this Agreement, ENDISPUTE is not in business or is no longer
providing arbitration services, then the American Arbitration
Association shall be substituted for ENDISPUTE for the purposes
of the foregoing provisions of this Section 12.7. If the
Executive shall be the prevailing party in such arbitration,
the Company shall promptly pay, upon demand of the Executive,
all legal fees, court costs and other costs and expenses
incurred by the Executive in any legal action seeking to
enforce the award in any court.
12.8. Beneficiaries. Whenever this Agreement
provides for any payment to the Executive's estate, such
payment may be made instead to such beneficiary or
beneficiaries as the Executive may designate by written notice
to the Company. The Executive shall have the right to revoke
any such designation and to redesignate a beneficiary or
beneficiaries by written notice to the Company (and to any
applicable insurance company) to such effect.
12.9. No Conflict. The Executive represents
and warrants to the Company that this Agreement is legal, valid
and binding upon the Executive and the execution of this
Agreement and the performance of the Executive's obligations
hereunder does not and will not constitute a breach of, or
conflict with the terms or provisions of, any agreement or
understanding to which the Executive is a party (including,
without limitation, any other employment agreement). The
Company represents and warrants to the Executive that this
Agreement is legal, valid and binding upon the Company and the
execution of this Agreement and the performance of the
Company's obligations hereunder does not and will not
constitute a breach of, or conflict with the terms or
provisions of, any agreement or understanding to which the
Company is a party.
12.10. Withholding Taxes. Payments made to the
Executive pursuant to this Agreement shall be subject to
withholding and social security taxes and other ordinary and
customary payroll deductions.
12.11. No Offset. Except as provided in
Section 9.4 of this Agreement, neither the Company nor the
Executive shall have any right to offset any amounts owed by
one party hereunder against amounts owed or claimed to be owed
to such party, whether pursuant to this Agreement or otherwise,
and the Company and the Executive shall make all the payments
provided for in this Agreement in a timely manner.
12.12. Severability. If any provision of this
Agreement shall be held invalid, the remainder of this
Agreement shall not be affected thereby; provided, however,
that the parties shall negotiate in good faith with respect to
equitable modification of the provision or application thereof
held to be invalid. To the extent that it may effectively do
so under applicable law, each party hereby waives any provision
of law which renders any provision of this Agreement invalid,
illegal or unenforceable in any respect.
12.13. Definitions. The following terms are
defined in this Agreement in the places indicated:
Account - Section 3.3
Account Retained Income - Section A.6 of Annex A
Advisory Period - Section 13
affiliate - Section 4.2.3
Applicable Tax Law - Section A.5 of Annex A
Base Salary - Section 3.1
cause - Section 4.1
Code - Section 4.2.2
Company - the first paragraph on page 1
and Section 9.1
Disability Date - Section 5
Effective Date - the first paragraph on page 1
eligible securities - Section A.1 of Annex A
Entity - Section 2
Executive - the first paragraph in page 1
fair market value - Section A.1 of Annex A
Investment Advisor - Section A.1 of Annex A
Other Period Deferred Amount - Section A.6 of Annex A
Pay-Out Period - Section A.6 of Annex A
Pension Plan - Section 8.4
Prior Account - Section 3.5
Prior Agreement - the second paragraph on page 1
senior executives - Section 3.1
term of employment - Section 1
Valuation Date - Section A.6 of Annex A
Work Product - Section 10
13. Advisory Services. The Executive shall render
the advisory services described in this Section for the period
beginning on May 1, 2002 and ending on April 30, 2003 (the
"Advisory Period"). During the Advisory Period, the Executive
will provide such advisory services concerning the business,
affairs and management of the Company as may be requested by
the Board of Directors, the Chief Financial Officer or the
President of the Company, but shall not be required to devote
more than five days (up to eight hours per day) each month to
such services, which shall be performed at a time and place
mutually convenient to both parties and consistent with the
Executive's other activities. If at any time during the
Advisory Period, the Executive engages in other full-time
employment, the Executive shall not be deemed to be in breach
of this Section 13, but unless such employment consists of the
Executive providing services to one or more (i) charitable or
non-profit organizations or (ii) family-owned corporations,
trusts, or partnerships, the term of employment and the
Advisory Period shall terminate, the Executive shall leave the
payroll of the Company and the Company shall have no further
obligations under this Agreement other than with respect to
earned and unpaid compensation and benefits. Notwithstanding
the foregoing, but subject to Section 9.2 of this Agreement,
during the Advisory Period the Executive may provide part-time
services to third parties (including serving as a member of the
Board of Directors of any such party). During the Advisory
Period, the Executive shall be entitled to receive compensation
in an amount equal to $350,000 per annum and shall continue to
be entitled to the benefits described in Section 8 hereof;
provided, however, that the Executive shall not be entitled to
a driver or automobile allowance or financial counseling during
the Advisory Period, shall not accrue any vacation time during
the Advisory Period and shall not be entitled to any severance
pay at the end thereof. In addition, during the Advisory
Period the Company shall provide the Executive with an office,
office facilities and a secretary as described in Section 4.3 hereof.
IN WITNESS WHEREOF, the parties have duly executed
this Agreement as of the date first above written.
TIME WARNER INC.
By /s/ Richard J. Bressler
Senior Vice President
and Chief Financial Officer
/s/ John A. LaBarca
John A. LaBarca
<PAGE>
ANNEX A
Deferred Compensation Account
A.1 Investments. Funds credited to the Account
shall be actually invested and reinvested in an account in
securities selected from time to time by an investment advisor
designated from time to time by the Company (the "Investment
Advisor"), substantially all of which securities shall be
"eligible securities". The designation from time to time by
the Company of an Investment Advisor shall be subject to the
approval of the Executive, which approval shall not be withheld
unreasonably. "Eligible securities" are common and preferred
stocks, warrants to purchase common or preferred stocks, put
and call options, and corporate or governmental bonds, notes
and debentures, either listed on a national securities exchange
or for which price quotations are published in newspapers of
general circulation, including The Wall Street Journal, and
certificates of deposit. Eligible securities shall not include
the common or preferred stock, any warrants, options or rights
to purchase common or preferred stock or the notes or
debentures of the Company or any corporation or other entity of
which the Company owns directly or indirectly 5% or more of any
class of outstanding equity securities. The Investment Advisor
shall have the right, from time to time, to designate eligible
securities which shall be actually purchased and sold for the
Account on the date of reference. Such purchases may be made
on margin; provided that the Company may, from time to time, by
written notice to the Executive and the Investment Advisor,
limit or prohibit margin purchases in any manner it deems
prudent and, upon three business days written notice to the
Executive and the Investment Advisor, cause all eligible
securities theretofore purchased on margin to be sold. The
Investment Advisor shall notify the Executive in writing of
each transaction within five business days thereafter and shall
render to the Executive written quarterly reports as to the
current status of his Account. In the case of any purchase,
the Account shall be charged with a dollar amount equal to the
quantity and kind of securities purchased multiplied by the
fair market value of such securities on the date of reference
and shall be credited with the quantity and kind of securities
so purchased. In the case of any sale, the Account shall be
charged with the quantity and kind of securities sold , and
shall be credited with a dollar amount equal to the quantity
and kind of securities sold multiplied by the fair market value
of such securities on the date of reference. Such charges and
credits to the Account shall take place immediately upon the
consummation of the transactions to which they relate. As used
herein "fair market value" means either (i) if the security is
actually purchased or sold by the Company on the date of
reference, the actual purchase or sale price per security to
the Company or (ii) if the security is not purchased or sold on
the date of reference, in the case of a listed security, the
closing price per security on the date of reference, or if
there were no sales on such date, then the closing price per
security on the nearest preceding day on which there were such
sales, and, in the case of an unlisted security, the mean
between the bid and asked prices per security on the date of
reference, or if no such prices are available for such date,
then the mean between the bid and asked prices per security on
the nearest preceding day for which such prices are available.
If no bid or asked price information is available with respect
to a particular security, the price quoted to the Company as
the value of such security on the date of reference (or the
nearest preceding date for which such information is available)
shall be used for purposes of administering the Account,
including determining the fair market value of such security.
The Account shall be charged currently with all interest paid
by the Account with respect to any credit extended to the
Account. Such interest shall be charged to the Account, for
margin purchases actually made, at the rates and times actually
paid by the Account. The Company may, in the Company's sole
discretion, from time to time serve as the lender with respect
to any margin transactions by notice to the then Investment
Advisor and in such case interest shall be charged at the rate
and times then charged by an investment banking firm designated
by the Company with which the Company does significant
business. Brokerage fees shall be charged to the Account at
the rates and times actually paid.
A.2 Dividends and Interest. The Account shall be
credited with dollar amounts equal to cash dividends paid from
time to time upon the stocks held therein. Dividends shall be
credited as of the payment date. The Account shall similarly
be credited with interest payable on interest bearing
securities held therein. Interest shall be credited as of the
payment date, except that in the case of purchases of
interest-bearing securities the Account shall be charged with
the dollar amount of interest accrued to the date of purchase,
and in the case of sales of such interest-bearing securities
the Account shall be credited with the dollar amount of
interest accrued to the date of sale. All dollar amounts of
dividends or interest credited to the Account pursuant to this
Section A.2 shall be charged with all taxes thereon deemed
payable by the Company (as and when determined pursuant to
Section A.5). The Investment Advisor shall have the same right
with respect to the investment and reinvestment of net
dividends and net interest as he has with respect to the
balance of the Account.
A.3 Adjustments. The Account shall be equitably
adjusted to reflect stock dividends, stock splits,
recapitalizations, mergers, consolidations, reorganizations and
other changes affecting the securities held therein.
A.4 Obligation of the Company. The Account shall be
charged with all taxes (including stock transfer taxes),
interest, brokerage fees and investment advisory fees, if any,
payable by the Company and attributable to the purchase or
disposition of securities designated by the Investment Advisor
(in all cases net after any tax benefits that the Company would
be deemed to derive from the payment thereof, as and when
determined pursuant to Section A.5), but no other costs of the
Company. The securities purchased for the Account as
designated by the Investment Advisor shall remain the sole
property of the Company, subject to the claims of its general
creditors, and shall not be deemed to form part of the Account.
Neither the Executive nor his legal representative nor any
beneficiary designated by the Executive shall have any right,
other than the right of an unsecured general creditor, against
the Company in respect of any portion of the Account.
A.5 Taxes. The Account shall be charged with all
federal, state and local taxes deemed payable by the Company
with respect to income recognized upon the dividends and
interest received by the Account pursuant to Section A.2 and
gains recognized upon sales of any of the securities which are
sold pursuant to Section A.1 or A.6. The Account shall be
credited with the amount of the tax benefit received by the
Company as a result of any payment of interest actually made
pursuant to Section A.1 or A.2 and as a result of any payment
of brokerage fees and investment advisory fees made pursuant to
Section A.1. If any of the sales of the securities which are
sold pursuant to Section A.1 or A.6 results in a loss to the
Account, such net loss shall be deemed to offset the income and
gains referred to in the second preceding sentence (and thus
reduce the charge for taxes referred to therein) to the extent
then permitted under the Internal Revenue Code of 1986, as
amended from time to time, and under applicable state and local
income and franchise tax laws (collectively referred to as
"Applicable Tax Law"); provided, however, that for the purposes
of this Section A.5 the Account shall, except as provided in
the third following sentence, be deemed to be a separate
corporate taxpayer and the losses referred to above shall be
deemed to offset only the income and gains referred to in the
second preceding sentence. Such losses shall be carried back
and carried forward within the Account to the extent permitted
by Applicable Tax Law in order to minimize the taxes deemed
payable on such income and gains within the Account. For the
purposes of this Section A.5, all charges and credits to the
Account for taxes shall be deemed to be made as of the end of
the Company's taxable year during which the transactions, from
which the liabilities for such taxes are deemed to have arisen,
are deemed to have occurred. Notwithstanding the foregoing, if
and to the extent that in any year there is a net loss in the
Account that cannot be offset against income and gains in any
prior year, then an amount equal to the tax benefit to the
Company of such net loss (after such net loss is reduced by the
amount of any net capital loss of the Account for such year)
shall be credited to the Account on the last day of such year.
If and to the extent that any such net loss of the Account
shall be utilized to determine a credit to the Account pursuant
to the preceding sentence, it shall not thereafter be carried
forward under this Section A.5. For purposes of determining
taxes payable by the Company under any provision of this Annex
A it shall be assumed that the Company is a taxpayer and pays
all taxes at the maximum marginal rate of federal income taxes
and state and local income and franchise taxes (net of assumed
federal income tax benefits) applicable to business
corporations and that all of such dividends, interest, gains
and losses are allocable to its corporate headquarters, which
are currently located in New York City.
A.6 Payments. Subject to the provisions of Section
A.7, payments of deferred compensation shall be made as
provided in this Section A.6. Unless the Executive makes the
election referred to in the next succeeding sentence, deferred
compensation shall be paid monthly for a period of 120 months
(the "Pay-Out Period") commencing on the first day of the month
after the later of (i) the date the Advisory Period is
scheduled to terminate and (ii) the date the Executive ceases
to be an employee of the Company and leaves the payroll of the
Company for any reason, provided, however, that if the
Executive was named in the compensation table in the Company's
then most recent proxy statement, such payments shall commence
on January 1st of the year following the year in which the
latest of such events occurs. The Executive may elect a
shorter Pay-Out Period by delivering written notice to the
Company at least one-year prior to the commencement of the
Pay-Out Period, which notice shall specify the shorter Pay-Out
Period. On each payment date, the Account shall be charged
with the dollar amount of such payment. On each payment date,
the amount of cash held in the Account shall be not less than
the payment then due and the Company may select the securities
to be sold to provide such cash if the Investment Advisor shall
fail to do so on a timely basis. The amount of any taxes
payable with respect to any such sales shall be computed, as
provided in Section A.5 above, and deducted from the Account,
as of the end of the taxable year of the Company during which
such sales are deemed to have occurred. Solely for the purpose
of determining the amount of monthly payments during the
Pay-Out Period, the Account shall be valued on the fifth
trading day preceding the first monthly payment of each year of
the Pay-Out Period, or more frequently at the Company's
election (the "Valuation Date"), by adjusting all of the
securities held in the Account to their fair market value (net
of the tax adjustment that would be made thereon if sold, as
estimated by the Company) and by deducting from the Account the
amount of all outstanding indebtedness and all amounts with
respect to which the Executive has elected pursuant to clause
(ii) of Section A.7 to receive payments at times different from
the time provided in this Section A.6 (the "Other Period
Deferred Amount"). The extent, if any, by which the Account,
valued as provided in the immediately preceding sentence (but
not reduced by the Other Period Deferred Amount to the extent
not theretofore distributed), exceeds the aggregate amount of
credits to the Account pursuant to Sections 3.3, 3.4 and 3.5 of
the Agreement as of each Valuation Date and not theretofore
distributed or deemed distributed pursuant to this Section A.6
is herein called "Account Retained Income". The amount of each
payment for the year, or such shorter period as may be
determined by the Company, of the Pay-Out Period immediately
succeeding such Valuation Date, including the payment then due,
shall be determined by dividing the aggregate value of the
Account, as valued and adjusted pursuant to the second
preceding sentence, by the number of payments remaining to be
paid in the Pay-Out Period, including the payment then due;
provided that each payment made shall be deemed made first out
of Account Retained Income (to the extent remaining after all
prior distributions thereof since the last Valuation Date).
The balance of the Account (excluding the Other Period Deferred
Amount), after all the securities held therein have been sold
and all indebtedness liquidated, shall be paid to the Executive
in the final payment, which shall be decreased by deducting
therefrom the amount of all taxes attributable to the sale of
any securities held in the Account since the end of the
preceding taxable year of the Company, which taxes shall be
computed as of the date of such payment.
If this Agreement is terminated by the Company
pursuant to Section 4.1 or if the Executive terminates this
Agreement or the term of employment in breach of this
Agreement, the Account shall be valued as of the later of (i)
the Term Date or (ii) twelve months after termination of the
Executive's employment with the Company, and the balance of the
Account, after the securities held therein have been sold and
all related indebtedness liquidated, shall be paid to the
Executive as soon as practicable and in any event within 75
days following the later of such dates in a final lump sum
payment, which shall be decreased by deducting therefrom the
amount of all taxes attributable to the sale of any securities
held in the Account since the end of the preceding taxable year
of the Company, which taxes shall be computed as of the date of
such payment. Payments made pursuant to this paragraph shall
be deemed made first out of Account Retained Income.
If the Executive becomes disabled within the meaning
of Section 5 of the Agreement and is not thereafter returned to
full-time employment with the Company as provided in said
Section 5, then deferred compensation shall be paid monthly
during the Pay-Out Period commencing on the first day of the
month following the end of the Disability Period in accordance
with the provisions of the first paragraph of this Section A.6.
If the Executive shall die at any time whether during
or after the term of employment, the Account shall be valued as
of the date of the Executive's death and the balance of the
Account shall be paid to the Executive's estate or beneficiary
within 75 days of such death in accordance with the provisions
of the second preceding paragraph.
Within 90 days after the end of each taxable year of
the Company in which payments have been made from the Account
and at the time of the final payment from the Account, the
Company shall compute and shall credit to the Account, the
amount of the tax benefit assumed to be received by it from the
payment to the Executive of amounts of Account Retained Income
during such taxable year or since the end of the last taxable
year, as the case may be. No additional credits shall be made
to the Account pursuant to the preceding sentence in respect of
the amounts credited to the Account pursuant to the preceding
sentence. Notwithstanding any provision of this Section A.6,
the Executive shall not be entitled to receive pursuant to this
Annex A an aggregate amount that shall exceed the sum of (i)
all credits made to the Account pursuant to Sections 3.3, 3.4
and 3.5 of the Agreement to which this Annex is attached, (ii)
the net cumulative amount (positive or negative) of all income,
gains, losses, interest and expenses charged or credited to the
Account pursuant to this Annex A (excluding credits made
pursuant to the second preceding sentence), after all credits
and charges to the Account with respect to the tax benefits or
burdens thereof, and (iii) an amount equal to the tax benefit
to the Company from the payment of the amount (if positive)
determined under clause (ii) above; and the final payment(s)
otherwise due may be adjusted or eliminated accordingly. In
determining the tax benefit to the Company under clause (iii)
above, the Company shall be deemed to have made the payments
under clause (ii) above with respect to the same taxable years
and in the same proportions as payments of Account Retained
Income were actually made from the Account. Except as
otherwise provided in this paragraph, the computation of all
taxes and tax benefits referred to in this Section A.6 shall be
determined in accordance with Section A.5 above.
A.7 Other Payment Methods. Notwithstanding the
foregoing provisions of this Annex A, the Executive may, prior
to the commencement of any calendar year elect by written
notice to the Company to cause (i) all or any portion of the
amounts otherwise to be credited to the Account in such year
under Section 3.3 of the Agreement not to be so credited but to
be paid to the Executive on the date(s) such credits otherwise
would have been made thereunder and/or (ii) all or any portion
of the amounts to be credited to the Account under Section 3.3
of the Agreement in such year (after giving effect to clause
(i) above) to be payable from the Account at times different
from those provided in Section A.6 above but not earlier than
the dates on which such amounts were to be credited to the Account.
<PAGE>
ANNEX B
RELEASE
Pursuant to the terms of the Employment Agreement
made as of _____________, between TIME WARNER INC., a Delaware
corporation (the "Company"), 75 Rockefeller Plaza, New York,
New York 10019 and the undersigned (the "Agreement"), and in
consideration of the payments made to me and other benefits to
be received by me pursuant thereto, I, [Name], being of lawful
age, do hereby release and forever discharge the Company and
its officers, shareholders, subsidiaries, agents, and
employees, from any and all actions, causes of action, claims,
or demands for general, special or punitive damages, attorney's
fees, expenses, or other compensation, which in any way relate
to or arise out of my employment with the Company or any of its
subsidiaries or the termination of such employment, which I may
now or hereafter have under any federal, state or local law,
regulation or order, including without limitation, under the
Age Discrimination in Employment Act, as amended, through and
including the date of this Release; provided, however, that the
execution of this Release shall not prevent the undersigned
from bringing a lawsuit against the Company to enforce its
obligations under the Agreement.
I acknowledge that I have been given at least 21 days
from the day I received a copy of this Release to sign it and
that I have been advised to consult an attorney. I understand
that I have the right to revoke my consent to this Release for
seven days following my signing. This Release shall not become
effective or enforceable until the expiration of the seven-day
period following the date it is signed by me.
I further state that I have read this document and
the Agreement referred to herein, that I know the contents of
both and that I have executed the same as my own free act.
WITNESS my hand this ____ day of ___________ , ____.
___________________________
[Name]
<TABLE> <S> <C>
<ARTICLE> 5
Exhibit 27 Exhibit 27
<LEGEND> TIME WARNER INC.
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information
extracted from the financial statements of Time Warner Inc. for the
six months ended June 30, 1997 and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 470
<SECURITIES> 0
<RECEIVABLES> 3,019
<ALLOWANCES> 839
<INVENTORY> 2,501
<CURRENT-ASSETS> 4,444
<PP&E> 3,154
<DEPRECIATION> 1,122
<TOTAL-ASSETS> 34,655
<CURRENT-LIABILITIES> 3,709
<BONDS> 12,711
<COMMON> 6
1,763
4
<OTHER-SE> 9,413
<TOTAL-LIABILITY-AND-EQUITY> 34,655
<SALES> 6,227
<TOTAL-REVENUES> 6,227
<CGS> 3,453
<TOTAL-COSTS> 3,453
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 534
<INCOME-PRETAX> 327
<INCOME-TAX> 245
<INCOME-CONTINUING> 82
<DISCONTINUED> 0
<EXTRAORDINARY> (17)
<CHANGES> 0
<NET-INCOME> 65
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.16)
</TABLE>
