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 September 30, 1996 or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934 for the transition period
from_____________________to________________________
Registration Number 33-53742
TIME WARNER ENTERTAINMENT COMPANY, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3666692
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
American Television and Communications
Corporation Delaware 13-2922502
Time Warner Operations Inc. Delaware 13-3544870
Warner Cable Communications Inc. Delaware 13-3134949
Warner Communications Inc. Delaware 13-2696809
(Exact name of registrant as
specified in its charter) (State or other (I.R.S.
jurisdiction of Employer
incorporation or Identification
organization) Number)
75 Rockefeller Plaza
New York, New York 10019
(212) 484-8000
(Address, including zip code, and telephone number, including
area code, of each 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 / /
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
AND TWE GENERAL PARTNERS
INDEX TO FORM 10-Q
Page
____
TWE
General
TWE Partners
___ ________
PART I. FINANCIAL INFORMATION
Management's discussion and analysis of
results of operations and financial
condition. . . . . . . . . . . . . . . . . . . 1 19
Consolidated balance sheets at
September 30, 1996 and December 31, 1995. . . . 9 23
Consolidated statements of operations for the
three and nine months ended September 30,
1996 and 1995. . . . . . . . . . . . . . . . . 10 25
Consolidated statements of cash flows for the
nine months ended September 30, 1996 and 1995 11 29
Notes to consolidated financial statements . . . 12 31
PART II. OTHER INFORMATION. . . . . . . . . . . . 38
<PAGE>
PART I. FINANCIAL INFORMATION
TIME WARNER ENTERTAINMENT COMPANY, L.P.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
TWE is engaged principally in three fundamental areas of
business: Entertainment, consisting principally of interests in
filmed entertainment, 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 Companies, Inc. ("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.
Significant Transactions
In 1996, certain transactions were completed by Time Warner
and TWE that have had an effect on TWE's results of operations and
financial condition. Such transactions include:
The acquisition by Time Warner of Cablevision
Industries Corporation ("CVI") and related
companies on January 4, 1996, which strengthened
Time Warner Cable's geographic clusters of cable
television systems and substantially increased the
number of cable subscribers managed by Time Warner
Cable. As of September 30, 1996, Time Warner Cable
served approximately 12.1 million subscribers in
neighborhoods passing nearly 20% of the television
homes in the U.S.
The closing of certain previously-announced sales
by TWE of unclustered cable television systems
which raised approximately $150 million of net
proceeds for debt reduction. Including the 1995
sale of 51% of its interest in Six Flags
Entertainment Corporation ("Six Flags"), TWE has
now completed transactions that have raised
approximately $1.3 billion for debt reduction.
The nature of these transactions and their impact on the results of
operations and financial condition of TWE are further discussed
below.
____________________
* Time Warner Companies, Inc. ("Old Time Warner") was formerly known as
Time Warner Inc. On October 10, 1996, Old Time Warner became a wholly
owned subsidiary of TW Inc. ("New Time Warner") in connection with the
acquisition by New Time Warner of the remaining 80% interest in Turner
Broadcasting System, Inc. that was not already owned by Old Time Warner.
Simultaneously therewith, New Time Warner was renamed Time Warner Inc.
and Old Time Warner was renamed Time Warner Companies, Inc. Unless the
context indicates otherwise, references herein to "Time Warner" refer to
Old Time Warner.
<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 nine
months ended September 30, 1996 and 1995 are as follows:
Three Months Ended September 30,
________________________________
EBITDA Operating Income
_____________ ________________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Filmed Entertainment . . . . $139 $118 $ 56 $ 60
Six Flags Theme Parks. . . . - - - -
Broadcasting - The WB Network (27) (7) (27) (7)
Programming - HBO. . . . . . 91 73 86 70
Cable. . . . . . . . . . . . 390 344 156 145
____ ____ ____ ____
Total. . . . . . . . . . . . $593 $528 $271 $268
==== ==== ==== ====
Nine Months Ended September 30,
_______________________________
EBITDA Operating Income
_______________ _________________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Filmed Entertainment . . . . . . $ 410 $348 $205 $179
Six Flags Theme Parks. . . . . . - 60 - 29
Broadcasting - The WB Network. . (63) (40) (63) (40)
Programming - HBO. . . . . . . . 259 218 245 207
Cable. . . . . . . . . . . . . . 1,134 900 449 350
_____ ____ ____ ____
Total. . . . . . . . . . . . . . $1,740 $1,486 $836 $725
====== ====== ==== ====
Three Months Ended September 30, 1996 Compared to the Three Months
Ended September 30, 1995
TWE had revenues of $2.718 billion, and net income of $45
million for the three months ended September 30, 1996, compared to
revenues of $2.324 billion, income of $47 million before an
extraordinary loss on the retirement of debt and net income of $23
million for the three months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 formation
of the TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing
of approximately $2.6 billion of pre-existing bank debt, (iii) the
1995 consolidation of Paragon, (iv) the 1995 reacquisition of the
Time Warner Service Partnership Assets, (v) the 1995 sale of 51% of
TWE's interest in Six Flags and (vi) the sale or expected sale or
transfer of certain unclustered cable television systems owned by
TWE, as if each of such transactions had occurred at the beginning
of 1995, TWE would have reported for the three months ended
September 30, 1995, revenues of $2.352 billion, depreciation and
amortization of $265 million, operating income of $265 million,
income before extraordinary item of $98 million and net income of
$74 million. No pro forma financial information has been presented
for TWE for the three months ended September 30, 1996 because all
of such transactions are already reflected, in all material
respects, in the historical financial statements of TWE.
As discussed more fully below, TWE's historical net income was
lower in 1996 as compared to historical and pro forma results in
1995 due to a decrease in investment-related income, which more
than offset the absence of a $24 million extraordinary loss on the
retirement of debt recognized in 1995, an overall increase in
operating income generated by its business segments and interest
savings in 1996 on lower average debt levels related to
management's debt reduction program.
As a U.S. partnership, TWE is not subject to U.S. federal and
state income taxation. Income and withholding taxes of $10 million
and $26 million in the three months ended September 30, 1996 and
1995, respectively, have been provided in respect of the operations
of TWE's domestic and foreign subsidiary corporations.
Filmed Entertainment. Revenues increased to $1.443 billion,
compared to $1.174 billion in the third quarter of 1995. EBITDA
increased to $139 million from $118 million. Depreciation and
amortization, including amortization related to the purchase of
WCI, amounted to $83 million in 1996 and $58 million in 1995.
Operating income decreased to $56 million from $60 million.
Revenues benefited from increases in domestic theatrical, worldwide
home video and worldwide television distribution operations, offset
in part by lower international theatrical revenues. EBITDA
increased, and operating income benefited, principally from the
revenue gains. Operating income was further affected in 1996 by
higher depreciation and amortization related to the summer opening
of an international theme park in Germany.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $27 million on $23 million of revenues in the
third quarter of 1996, compared to $7 million of an operating loss
on $7 million of revenues in the third quarter of 1995. The
increase in revenues and operating losses primarily resulted from
the expansion of the WB Network's primetime programming schedule
(now at three nights) and the expansion of Kids' WB!, the network's
animated programming lineup on Saturday mornings and weekdays. In
addition, operating losses for 1995 were mitigated by a favorable
legal settlement. Due to the start-up nature of this new national
broadcast operation, losses are expected to continue.
Programming - HBO. Revenues increased to $426 million,
compared to $404 million in the third quarter of 1995. EBITDA
increased to $91 million from $73 million. Depreciation and
amortization amounted to $5 million in 1996 and $3 million in 1995.
Operating income increased to $86 million from $70 million.
Revenues benefited primarily from a significant increase in
subscriptions. EBITDA and operating income improved principally as
a result of the revenue gains, as well as income related to the
licensing of the television series Martin for domestic syndicated
television exhibition.
Cable. Revenues increased to $955 million, compared to $826
million in the third quarter of 1995. EBITDA increased to $390
million from $344 million. Depreciation and amortization, including
amortization related to the purchase of WCI and the acquisition of
the ATC minority interest, amounted to $234 million in 1996 and
$199 million in 1995. Operating income increased to $156 million
from $145 million. Revenues benefited from an aggregate 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 Federal
Communications Commission (the "FCC") and increases in advertising
revenues. EBITDA and operating income increased as a result of the
revenue gains, offset in part, with respect to operating income
only, by higher depreciation and amortization relating to increased
capital spending.
Interest and Other, Net. Interest and other, net, increased to
$147 million in the third quarter of 1996, compared to $127 million
in the third quarter of 1995. Interest expense decreased to $117
million, compared to $144 million in the third quarter of 1995,
principally as a result of interest savings on lower average debt
levels related to management's debt reduction program and lower
short-term, floating-rates of interest paid on borrowings under
TWE's former and existing bank credit agreements. There was other
expense, net, of $30 million in the third quarter of 1996, compared
to other income, net, of $17 million in 1995, principally due to a
decrease in investment-related income. The decrease in investment-related
income related to a reduction in interest income associated
with lower average cash balances and lower average principal
amounts due under the note receivable from U S WEST that was fully
collected as of June 1996.
Nine Months Ended September 30, 1996 Compared to the Nine Months
Ended September 30, 1995
TWE had revenues of $7.811 billion and net income of $213
million for the nine months ended September 30, 1996, compared to
revenues of $6.762 billion, income of $107 million before an
extraordinary loss on the retirement of debt and net income of $83
million for the nine months ended September 30, 1995.
On a pro forma basis, giving effect to (i) the 1995 formation
of the TWE-Advance/Newhouse Partnership, (ii) the 1995 refinancing
of approximately $2.6 billion of pre-existing bank debt, (iii) the
1995 consolidation of Paragon, (iv) the 1995 reacquisition of the
Time Warner Service Partnership Assets, (v) the 1995 sale of 51% of
TWE's interest in Six Flags and (vi) the sale or expected sale or
transfer of certain unclustered cable television systems owned by
TWE, as if each of such transactions had occurred at the beginning
of 1995, TWE would have reported for the nine months ended
September 30, 1995, revenues of $6.935 billion, depreciation and
amortization of $793 million, operating income of $725 million,
income before extraordinary item of $175 million and net income of
$151 million. No pro forma financial information has been presented
for TWE for the nine months ended September 30, 1996 because all of
such transactions are already reflected, in all material respects,
in the historical financial statements of TWE.
As discussed more fully below, TWE's historical net income was
higher in 1996 as compared to pro forma results in 1995 due to an
overall increase in operating income generated by its business
segments and the absence of a $24 million extraordinary loss on the
retirement of debt recognized in 1995, offset in part by a decrease
in investment-related income and an increase in minority interest
expense related to the TWE-Advance/Newhouse Partnership. On a
historical basis, such underlying operating trends were enhanced by
interest savings in 1996 on lower average debt levels related to
management's debt reduction program.
As a U.S. partnership, TWE is not subject to U.S. federal and
state income taxation. Income and withholding taxes of $49 million
in the nine months ended September 30, 1996, and $62 million in the
nine months ended September 30, 1995, have been provided in respect
of the operations of TWE's domestic and foreign subsidiary
corporations.
Filmed Entertainment. Revenues increased to $3.929 billion,
compared to $3.508 billion in the first nine months of 1995. EBITDA
increased to $410 million from $348 million. Depreciation and
amortization, including amortization related to the purchase of
WCI, amounted to $205 million in 1996 and $169 million in 1995.
Operating income increased to $205 million from $179 million.
Revenues benefited from increases in domestic theatrical, worldwide
home video and worldwide television distribution operations, offset
in part by lower international theatrical revenues. EBITDA and
operating income benefited principally from the revenue gains,
offset in part, with respect to operating income only, by higher
depreciation and amortization related to the 1996 summer opening of
an international theme park in Germany.
Six Flags Theme Parks. As a result of TWE's sale of 51% of
its interest in Six Flags, the operating results of Six Flags have
been deconsolidated effective as of June 23, 1995 and TWE's
remaining 49% interest in Six Flags is accounted for under the
equity method of accounting.
Broadcasting - The WB Network. The WB Network recorded an
operating loss of $63 million on $56 million of revenues in the
first nine months of 1996, compared to an operating loss of $40
million on $13 million of revenues in the first nine months of
1995. The increase in revenues and operating losses primarily
resulted from the expansion of the WB Network's primetime
programming schedule (now at three nights) and the expansion of
Kids' WB!, the network's animated programming lineup on Saturday
mornings and weekdays. In addition, operating losses for 1995 were
mitigated by a favorable legal settlement. Due to the start-up
nature of this new national broadcast operation, losses are
expected to continue.
Programming - HBO. Revenues increased to $1.301 billion,
compared to $1.181 billion in the first nine months of 1995. EBITDA
increased to $259 million from $218 million. Depreciation and
amortization amounted to $14 million in 1996 and $11 million in
1995. Operating income increased to $245 million from $207 million.
Revenues benefited primarily from a significant increase in
subscriptions. EBITDA and operating income improved principally as
a result of the revenue gains, as well as income related to the
licensing of the television series Martin for domestic syndicated
television exhibition.
Cable. Revenues increased to $2.863 billion, compared to
$2.107 billion in the first nine months of 1995. EBITDA increased
to $1.134 billion from $900 million. Depreciation and amortization,
including amortization related to the purchase of WCI and the
acquisition of the ATC minority interest, amounted to $685 million
in 1996 and $550 million in 1995. Operating income increased to
$449 million from $350 million. Revenues and operating results
benefited from the contribution of the TWE-Advance/Newhouse
Partnership and the consolidation of Paragon for a full nine-month
period. Excluding such effects, revenues benefited from an
aggregate 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 increases in pay-per-view and advertising revenues.
Excluding the TWE-Advance/Newhouse Partnership and Paragon effects
noted above, EBITDA and operating income increased as a result of
the revenue gains, offset in part, with respect to operating income
only, by higher depreciation and amortization relating to increased
capital spending.
Interest and Other, Net. Interest and other, net, decreased to
$368 million in the first nine months of 1996, compared to $423
million in the first nine months of 1995. Interest expense
decreased to $356 million, compared to $440 million in the first
nine months of 1995, principally as a result of interest savings on
lower average debt levels related to management's debt reduction
program and lower short-term, floating-rates of interest paid on
borrowings under TWE's former and existing bank credit agreements.
There was other expense, net, of $12 million in the first nine
months of 1996 compared to other income, net, of $17 million in
1995, principally due to an overall decrease in investment-related
income. The decrease in investment-related income resulted from a
reduction in interest income, offset in part by higher gains on the
sale of certain unclustered cable systems recognized in connection
with management's debt reduction program. The reduction in interest
income related to lower average cash balances and lower average
principal amounts due under the note receivable from U S WEST that
was fully collected as of June 1996.
FINANCIAL CONDITION AND LIQUIDITY
September 30, 1996
Financial Condition
TWE had $5.7 billion of debt, $1.5 billion of Time Warner
General Partners' Senior Capital and $6.6 billion of partners'
capital at September 30, 1996, compared to $6.2 billion of debt,
$1.4 billion of Time Warner General Partners' Senior Capital and
$6.5 billion of partners' capital (net of the $169 million
uncollected portion of the note receivable from U S WEST) at
December 31, 1995. Cash and equivalents were $209 million at
September 30, 1996, and December 31, 1995, reducing the debt-net-
of-cash amounts for TWE to $5.5 billion and $6 billion, respectively.
Debt Reduction Program
In the first nine months of 1996, TWE closed certain
previously-announced sales of unclustered cable television systems
which raised approximately $150 million of proceeds for debt
reduction. Including the 1995 sale of 51% of its interest in Six
Flags, TWE has now completed transactions that have raised
approximately $1.3 billion for debt reduction.
Cash Flows
In the first nine months of 1996, TWE's cash provided by
operations amounted to $1.322 billion and reflected $1.740 billion
of EBITDA from the Filmed Entertainment, Broadcasting-The WB
Network, Programming-HBO and Cable businesses and $77 million
related to a reduction in working capital requirements, other
balance sheet accounts and noncash items, less $391 million of
interest payments, $52 million of income taxes and $52 million of
corporate expenses. Cash provided by operations of $1.194 billion
in the first nine months of 1995 reflected $1.486 billion of
business segment EBITDA and $256 million related to a reduction in
working capital requirements, other balance sheet accounts and
noncash items, less $442 million of interest payments, $59 million
of income taxes and $47 million of corporate expenses.
Cash used by investing activities was $864 million in the
first nine months of 1996, compared to $82 million in the first
nine months of 1995, principally as a result of a $581 million
decrease in investment proceeds realized in 1995 in connection with
management's debt reduction program and higher capital
expenditures. Capital expenditures increased to $1.228 billion in
the first nine months of 1996, compared to $983 million in the
first nine months of 1995, principally as a result of higher cable
capital spending as discussed more fully below.
Cash used by financing activities was $458 million in the
first nine months of 1996, compared to $1.744 billion in the first
nine months of 1995, principally as a result of a lower level of
debt reduction realized in 1996 and an $820 million decrease in
distributions paid to Time Warner, offset in part by a $206 million
decrease in collections on the note receivable from U S WEST.
Management believes that TWE's operating cash flow, cash and
equivalents and additional borrowing capacity are sufficient to
meet 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 $936 million in the nine months ended
September 30, 1996, compared to $718 million in the nine months
ended September 30, 1995, and was financed in part through
collections on the note receivable from U S WEST of $169 million
and $375 million, respectively. Cable capital spending by TWE's
Cable division is budgeted to be approximately $400 million for the
remainder of 1996 and 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 principally 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, telephony 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, network, basic
cable and syndicated television exhibition, amounted to $1.611
billion at September 30, 1996, compared to $1.056 billion at
December 31, 1995 (including amounts relating to HBO of $190
million at September 30, 1996 and $175 million at December 31,
1995). Warner Bros.' backlog increased principally as a result of
the licensing of the hit television series Friends and ER for
domestic syndication and cable television exhibition beginning in
1998. 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. In addition, 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 cash through the sale of advertising
spots received under such contracts.
Foreign Currency Risk Management
Time Warner uses foreign exchange contracts primarily to hedge
the risk that unremitted or future license fees owed to TWE
domestic companies for the sale or anticipated sale of U.S.
copyrighted products abroad may be adversely affected by changes in
foreign currency exchange rates. As part of its overall strategy to
manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, Time Warner hedges a portion of its
foreign currency exposures anticipated over the ensuing twelve
month period, including those related to TWE. At September 30,
1996, Time Warner had effectively hedged approximately half of
TWE's estimated foreign currency exposures that principally relate
to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve month period, using foreign exchange contracts that
generally have maturities of three months or less, which are
generally rolled over to provide continuing coverage throughout the
year. TWE is reimbursed by or reimburses Time Warner for Time
Warner contract gains and losses related to TWE's foreign currency
exposure. Time Warner often closes foreign exchange sale contracts
by purchasing an offsetting purchase contract. At September 30,
1996, Time Warner had contracts for the sale of $500 million and
the purchase of $200 million of foreign currencies at fixed rates.
Of Time Warner's $300 million net sale contract position, none of
the foreign exchange purchase contracts and $103 million of the
foreign exchange sale contracts related to TWE's foreign currency
exposure, primarily Japanese yen (21% of net contract position
related to TWE), French francs (22%), German marks (11%) and
Canadian dollars (18%), compared to a net sale contract position of
$113 million of foreign currencies at December 31, 1995.
Unrealized gains or losses related to foreign exchange
contracts are recorded in income as the market value of such
contracts change; accordingly, the carrying value of foreign
exchange contracts approximates market value. The carrying value of
foreign exchange contracts was not material at September 30, 1996
and December 31, 1995. No cash is required to be received or paid
with respect to such gains and losses until the related foreign ex-
change contracts are settled, generally at their respective
maturity dates. For the nine months ended September 30, 1996 and
1995, TWE recognized $4 million in gains and $8 million in losses,
respectively, on foreign exchange contracts, which were or are
expected to be offset by corresponding decreases and increases,
respectively, in the dollar value of foreign currency license fee
payments that have been or are anticipated to be received in cash
from the sale of U.S. copyrighted products abroad. Time Warner
places foreign currency contracts with a number of major financial
institutions in order to minimize credit risk.
Based on Time Warner's outstanding foreign exchange contracts
related to TWE's exposure outstanding at September 30, 1996, each
5% devaluation of the U.S. dollar as compared to the level of
foreign exchange rates for currencies under contract at September
30, 1996 would result in approximately $5 million of unrealized
losses on foreign exchange contracts. Conversely, a 5% appreciation
of the U.S. dollar as compared to the level of foreign exchange
rates for currencies under contract at September 30, 1996 would
result in $5 million of unrealized gains on contracts. Consistent
with the nature of the economic hedge provided by such foreign
exchange contracts, such unrealized gains or losses would be offset
by corresponding decreases or increases, respectively, in the
dollar value of future foreign currency license fee payments that
would be received in cash within the ensuing twelve month period
from the sale of U.S. copyrighted products abroad.
<PAGE>
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
September 30, December 31,
1996 1995
____________ ____________
(millions)
ASSETS
Current assets
Cash and equivalents. . . . . . . . . $ 209 $ 209
Receivables, including $295 and $354
due from Time Warner, less allowances
of $366 and $365. . . . . . . . . . 1,542 1,635
Inventories. . . . . . . . . . . . . 1,200 904
Prepaid expenses . . . . . . . . . . 142 161
______ _______
Total current assets 3,093 2,909
Noncurrent inventories. . . . . . . . 2,063 1,909
Loan receivable from Time Warner. . . 400 400
Investments. . . . . . . . . . . . . 296 383
Property, plant and equipment, net. . 5,780 5,205
Cable television franchises . . . . 3,101 3,360
Goodwill . . . . . . . . . . . . . . 4,027 4,119
Other assets . . . . . . . . . . . . 681 620
______ ______
Total assets . . . . . . . . . . . . $19,441 $18,905
======= =======
LIABILITIES AND PARTNERS' CAPITAL
Current liabilities
Accounts payable. . . . . . . . . . . $ 670 $ 697
Participations and
programming costs . . . . . . . . . 1,354 1,090
Debt due within one year . . . . . . 2 47
Other current liabilities. . . . . . 1,571 1,380
______ ______
Total current liabilities. . . . . . 3,597 3,214
Long-term debt . . . . . . . . . . . 5,673 6,137
Other long-term liabilities, including
$292 and $198 due to Time Warner . . . 1,120 924
Minority interests . . . . . . . . . . 900 726
Time Warner General Partners' Senior
Capital . . . . . . . . . . . . . . . 1,513 1,426
Partners' capital
Contributed capital. . . . . . . . . . 7,537 7,522
Undistributed partnership earnings
(deficit) . . . . . . . . . . . . . . (899) (875)
Note receivable from U S WEST. . . . . - (169)
Total partners' capital. . . . . . . . 6,638 6,478
_______ _______
Total liabilities and partners'
capital. . . . . . . . . . . . . . . $19,441 $18,905
======= =======
See accompanying notes.
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
Three Months Nine Months
Ended Ended
September 30, September 30,
_____________ _____________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Revenues (a) . . . . . . . . . . . . $2,718 $2,324 $7,811 $6,762
_____ _____ _____ _____
Cost of revenues (a)(b). . . . . . . 1,855 1,589 5,250 4,640
Selling, general and adminis-
trative (a)(b). . . . . . . . . . . 592 467 1,725 1,397
_____ _____ _____ _____
Operating expenses . . . . . . . . . 2,447 2,056 6,975 6,037
_____ _____ _____ _____
Business segment operating income. . 271 268 836 725
Interest and other, net (a). . . . . (147) (127) (368) (423)
Minority interest. . . . . . . . . . (52) (51) (154) (86)
Corporate services (a) . . . . . . . (17) (17) (52) (47)
_____ _____ _____ _____
Income before income taxes . . . . . 55 73 262 169
Income taxes . . . . . . . . . . . . (10) (26) (49) (62)
_____ _____ _____ _____
Income before extraordinary item . . 45 47 213 107
Extraordinary loss on retirement
of debt. . . . . . . . . . . . . . - (24) - (24)
______ ______ _____ ______
Net income . . . . . . . . . . . . . $ 45 $ 23 $ 213 $ 83
====== ====== ===== ======
__________________
(a) Includes the following income (expenses) resulting from
transactions with the partners of TWE and other related companies
for the three and nine months ended September 30, 1996,
respectively, and for the corresponding periods in the prior year:
revenues- $48 million and $147 million in 1996, $17 million and $75
million in 1995; cost of revenues- $(30) million and $(68) million
in 1996, $(19) million and $(72) million in 1995; selling, general
and administrative- $(24) million and $(33) million in 1996, $(22)
million and $(62) million in 1995; interest and other, net- $6
million and $22 million in 1996, $14 million and $20 million in
1995; and corporate services- $(17) million and $(52) million in
1996, $(17) million and $(47) million in 1995.
(b) Includes depreciation and amortization
expense of: . . . . . . . . . $ 322 $ 260 $ 904 $ 761
===== ===== ===== =====
See accompanying notes.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
___________________
1996 1995
____ ____
(millions)
OPERATIONS
Net income. . . . . . . . . . . . . . . . . . $ 213 $ 83
Adjustments for noncash and nonoperating
items:
Extraordinary loss on retirement of debt. . . - 24
Depreciation and amortization . . . . . . . . 904 761
Changes in operating assets and
liabilities. . . . . . . . . . . . . . . . . 205 326
______ ______
Cash provided by operations . . . . . . . . . 1,322 1,194
______ ______
INVESTING ACTIVITIES
Investments and acquisitions. . . . . . . . . (86) (130)
Capital expenditures. . . . . . . . . . . . . (1,228) (983)
Investment proceeds . . . . . . . . . . . . . 450 1,031
_____ _____
Cash used by investing activities . . . . . . (864) (82)
_____ _____
FINANCING ACTIVITIES
Borrowings. . . . . . . . . . . . . . . . . . 190 2,041
Debt repayment. . . . . . . . . . . . . . . . (697) (3,135)
Capital distributions . . . . . . . . . . . . (162) (982)
Collections on note receivable from
U S WEST . . . . . . . . . . . . . . . . . . 169 375
Other . . . . . . . . . . . . . . . . . . . . 42 (43)
_____ _____
Cash used by financing activities . . . . . . (458) (1,744)
______ _______
DECREASE IN CASH AND EQUIVALENTS. . . . . . . - (632)
CASH AND EQUIVALENTS AT BEGINNING
OF PERIOD. . . . . . . . . . . . . . . . . . 209 1,071
___ _____
CASH AND EQUIVALENTS AT END
OF PERIOD. . . . . . . . . . . . . . . . . . $209 $ 439
==== ======
See accompanying notes.
<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"), is engaged principally in three fundamental
areas of business: Entertainment, consisting principally of
interests in filmed entertainment, 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 and
television libraries of Warner Bros. and trademarks such as the
Looney Tunes characters and Batman, (2) The WB Network, a new
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 significantly
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 in accordance with the pushdown method of
accounting. Noncash amortization of intangible assets recorded by
TWE's businesses amounted to $115 million and $112 million for the
three months ended September 30, 1996 and 1995, respectively, and
$326 million and $344 million for the nine months ended September
30, 1996 and 1995, respectively.
Subsidiaries of Time Warner are the general partners of TWE
("Time Warner General Partners"). During 1995, Time Warner acquired
the aggregate 11.22% limited partnership interests previously held
by subsidiaries of each of ITOCHU Corporation and Toshiba
Corporation. As a result, Time Warner and certain of its wholly
owned subsidiaries collectively own general and limited partnership
interests in 74.49% of the pro rata priority capital ("Series A
Capital") and residual equity capital ("Residual Capital") of TWE,
and 100% of the senior priority capital ("Senior Capital") and
junior priority capital ("Series B Capital") of TWE. 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").
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, 1995.
The consolidated financial statements reflect (i) the
formation by TWE of the TWE-Advance/Newhouse Partnership effective
as of April 1, 1995, (ii) the deconsolidation of Six Flags
Entertainment Corporation ("Six Flags") effective as of June 23,
1995 and (iii) the consolidation of Paragon Communications
("Paragon") effective as of July 6, 1995. Certain reclassifications
have been made to 1995 financial statements to conform to the 1996
presentation.
Effective January 1, 1996, TWE adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
("FAS 121") which established standards for the recognition and
measurement of impairment losses on long-lived assets and certain
intangible assets. The adoption of FAS 121 did not have a material
effect on TWE's financial statements.
2. TWE-ADVANCE/NEWHOUSE PARTNERSHIP
On April 1, 1995, TWE formed a cable television joint venture
with the Advance/Newhouse Partnership ("Advance/Newhouse") to which
Advance/Newhouse and TWE contributed cable television systems (or
interests therein) serving approximately 4.5 million subscribers,
as well as certain foreign cable investments and programming
investments that included Advance/Newhouse's 10% interest in
Primestar Partners, L.P. ("Primestar"). TWE owns a two-thirds
equity interest in the TWE-Advance/Newhouse Partnership and is the
managing partner. TWE consolidates the partnership and the one-third
equity interest owned by Advance/Newhouse is reflected in TWE's
consolidated financial statements as minority interest. In accordance
with the partnership agreement, Advance/Newhouse can require TWE to
purchase its equity interest for fair market value at specified intervals
following the death of both of its principal shareholders. Beginning in the
third year, either partner can initiate a dissolution in which TWE would
receive two-thirds and Advance/Newhouse would receive one-third of the
partnership's net assets. The assets contributed by TWE and Advance/Newhouse
to the partnership were recorded at their predecessor's historical cost,
which, with respect to Advance/Newhouse, consisted of assets contributed to
the partnership of approximately $338 million and liabilities assumed by the
partnership of approximately $9 million. No gain was recognized by TWE upon
the capitalization of the partnership.
The accompanying consolidated statement of operations includes
the operating results of the Advance/Newhouse businesses from the
date of contribution to the partnership. On a pro forma basis,
giving effect to (i) the 1995 formation of the TWE-Advance/Newhouse
Partnership, (ii) the 1995 refinancing of approximately $2.6
billion of pre-existing bank debt, (iii) the 1995 consolidation of
Paragon, (iv) the 1995 reacquisition of the Time Warner Service
Partnership Assets (Note 6), (v) the 1995 sale of 51% of TWE's
interest in Six Flags and (vi) the sale or expected sale or
transfer of certain unclustered cable television systems owned by
TWE, as if each of such transactions had occurred at the beginning
of 1995, TWE would have reported for the three and nine months
ended September 30, 1995, respectively, revenues of $2.352 billion
and $6.935 billion, depreciation and amortization of $265 million
and $793 million, operating income of $265 million and $725 million
and net income of $74 million and $151 million. No pro forma
financial information has been presented for TWE for the three and
nine months ended September 30, 1996 because all of such
transactions are already reflected, in all material respects, in
the historical financial statements of TWE.
3. SIX FLAGS
On June 23, 1995, TWE sold 51% of its interest in Six Flags to
an investment group led by Boston Ventures for $204 million and
received $640 million in additional proceeds from Six Flags,
representing payment of certain intercompany indebtedness and
licensing fees. As a result of the transaction, Six Flags has been
deconsolidated and TWE's remaining 49% interest in Six Flags is
accounted for under the equity method of accounting. TWE reduced
debt by approximately $850 million in 1995 in connection with the
transaction, and a portion of the income on the transaction has
been deferred by TWE principally as a result of its guarantee of
certain third-party, zero-coupon indebtedness of Six Flags due in
1999.
4. INVENTORIES
Inventories consist of:
September 30, 1996 December 31, 1995
_____________________ ____________________
Current Noncurrent Current Noncurrent
_______ __________ _______ __________
(millions)
Film costs:
Released, less amortization . . $ 501 $ 448 $ 529 $ 437
Completed and not released. . . 312 72 74 22
In process and other. . . . . . 34 541 11 396
Library, less amortization. . . - 677 - 717
Programming costs, less
amortization. . . . . . . . . . 251 325 219 337
Merchandise. . . . . . . . . . . 102 - 71 -
_____ _____ ____ _____
Total. . . . . . . . . . . . . . $1,200 $2,063 $ 904 $1,909
====== ====== ===== ======
<PAGE>
5. LONG-TERM DEBT
Long-term debt consists of:
September 30, December 31,
1996 1995
____________ ____________
(millions)
Credit agreement, weighted average
interest rates of 6.0% and 6.4% . . . . . $1,335 $2,185
Commercial paper, weighted average
interest rates of 5.8% and 6.2% . . . . . 545 157
Publicly held notes and debentures . . . . 3,781 3,781
Other. . . . . . . . . . . . . . . . . . . 12 14
______ ______
Total. . . . . . . . . . . . . . . . . . . $5,673 $6,137
====== ======
Each Time Warner General Partner has guaranteed a pro rata
portion of approximately $5.4 billion of TWE's debt and accrued
interest thereon 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.
An extraordinary loss of $24 million was recognized in 1995 in
connection with the write-off of deferred financing costs related
to TWE's former bank credit agreement that was terminated.
6. PARTNERS' CAPITAL
Changes in partners' capital were as follows:
Nine Months
Ended September 30,
___________________
1996 1995
____ ____
(millions)
Balance at beginning of year . . . . . . . . $6,478 $6,233
Net income . . . . . . . . . . . . . . . . . 213 83
Capital contributions. . . . . . . . . . . . 15 -
Distributions. . . . . . . . . . . . . . . . (161) (371)
Allocation of income to Time Warner General
Partners' Senior Capital. . . . . . . . . . (87) (101)
Collections on note receivable from
U S WEST . . . . . . . . . . . . . . . . . 169 375
Reacquisition of Time Warner Service
Partnership Assets. . . . . . . . . . . . . - 124
Other. . . . . . . . . . . . . . . . . . . . 11 8
_____ ____
Balance at September 30. . . . . . . . . . . $6,638 6,351
====== =====
In September 1995, TWE reacquired substantially all of the
assets of the Time Warner Service Partnerships, subject to the
liabilities relating thereto (the Time Warner Service Partnership
Assets"), in exchange for Series B Capital interests in TWE equal
to approximately $400 million. The reacquisition was recorded for
financial statement purposes based on the $124 million historical
cost of the Time Warner Service Partnership Assets. Prior to such
reacquisition, the Time Warner Service Partnerships owned and
operated certain assets of TWE which had been distributed to the
Time Warner General Partners in September 1993 in order to ensure
compliance with the Modification of Final Judgment entered on
August 24, 1982 by the United States District Court for the
District of Columbia applicable to U S WEST and its affiliated
companies, which may have included TWE. Prior to September 1995,
TWE was required to make quarterly cash distributions related to
its Series B Capital in the amount of $12.5 million to the Time
Warner General Partners ( TWSP Distributions"), which the General
Partners were then required to contribute to the Time Warner
Service Partnerships.
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 previously-accrued stock option distributions and the
corresponding liability when the market price of Time Warner common
stock declines.
During the nine months ended September 30, 1996, TWE accrued
$153 million of tax-related distributions and $8 million of stock
option distributions, based on closing prices of Time Warner common
stock of $38.50 at September 30, 1996 and $37.875 at December 31,
1995. During the nine months ended September 30, 1995, TWE accrued
$25 million of TWSP Distributions and $241 million of tax-related
distributions, as well as $105 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 nine months ended
September 30, 1996, TWE paid distributions to the Time Warner
General Partners in the amount of $162 million, consisting of $153
million of tax-related distributions and $9 million of stock option
related distributions. In the nine months ended September 30, 1995,
TWE paid the Time Warner General Partners distributions in the
amount of $982 million, consisting of $575 million of tax-related
distributions, $25 million of TWSP Distributions, $16 million of
stock option related distributions and $366 million of
distributions of TWE partnership income that had been allocated to
the Time Warner General Partners' Senior Capital interest.
<PAGE>
7. SEGMENT INFORMATION
TWE's businesses are conducted in three fundamental areas of
business: Entertainment, consisting principally of interests in
filmed entertainment, 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. The operating results of TWE reflect
the formation of the TWE-Advance/Newhouse Partnership effective as
of April 1, 1995, the deconsolidation of Six Flags effective as of
June 23, 1995 and the consolidation of Paragon effective as of July
6, 1995. The operating results of Six Flags prior to June 23, 1995
are reported separately to facilitate comparability.
Three Months Nine Months
Ended Ended
September 30, September 30,
_____________ _____________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Revenues
Filmed Entertainment . . . . . . . $1,443 $1,174 $3,929 $3,508
Six Flags Theme Parks. . . . . . . - - - 227
Broadcasting - The WB Network. . . 23 7 56 13
Programming - HBO. . . . . . . . . 426 404 1,301 1,181
Cable. . . . . . . . . . . . . . . 955 826 2,863 2,107
Intersegment elimination . . . . . (129) (87) (338) (274)
_____ _____ _____ _____
Total. . . . . . . . . . . . . . . $2,718 $2,324 $7,811 $6,762
====== ====== ====== ======
Three Months Nine Months
Ended Ended
September 30, September 30,
______________ ______________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Operating Income
Filmed Entertainment . . . . . . . . $ 56 $ 60 $ 205 $ 179
Six Flags Theme Parks. . . . . . . . - - - 29
Broadcasting - The WB Network. . . . (27) (7) (63) (40)
Programming - HBO. . . . . . . . . . 86 70 245 207
Cable. . . . . . . . . . . . . . . . 156 145 449 350
______ _____ _____ _____
Total. . . . . . . . . . . . . . . . $ 271 $ 268 $ 836 $ 725
====== ===== ===== =====
Three Months Nine Months
Ended Ended
September 30, September 30,
_____________ _____________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Depreciation of Property, Plant
and Equipment
Filmed Entertainment . . . . . . . . $ 51 $ 27 $113 $ 69
Six Flags Theme Parks. . . . . . . . - - - 20
Broadcasting - The WB Network. . . . - - - -
Programming - HBO. . . . . . . . . . 5 3 14 11
Cable. . . . . . . . . . . . . . . . 151 118 451 317
______ ______ ____ ____
Total. . . . . . . . . . . . . . . . $207 $ 148 $578 $417
====== ====== ==== ====
Three Months Nine Months
Ended Ended
September 30, September 30,
_____________ _____________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Amortization of Intangible Assets (1)
Filmed Entertainment . . . . . . . . . $ 32 $ 31 $ 92 $100
Six Flags Theme Parks. . . . . . . . . - - - 11
Broadcasting - The WB Network. . . . . - - - -
Programming - HBO. . . . . . . . . . . - - - -
Cable. . . . . . . . . . . . . . . . . 83 81 234 233
___ ___ ___ ___
Total. . . . . . . . . . . . . . . . . $115 $112 $326 $344
______________ ==== ==== ==== ====
(1) Amortization includes amortization relating to the acquisition
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
counsel and 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 is as follows:
Nine Months
Ended September 30,
___________________
1996 1995
____ ____
(millions)
Interest expense . . . . . . . . . . . . . . . . $356 $440
Cash payments made for interest. . . . . . . . . 391 442
Cash payments made for income taxes (net). . . . 52 59
<PAGE>
TWE GENERAL PARTNERS
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Set forth below is a discussion of the results of operations
and financial condition of WCI, the only General Partner with
independent business operations. The financial position and results
of operations of ATC, TWOI and WCCI (the other General Partners of
TWE, as described in Note 1 to the accompanying consolidated
financial statements) are principally derived from their
investments in TWE, Time Warner Companies, Inc. ("Time Warner"),
Turner Broadcasting System, Inc. ("TBS") and their revolving credit
agreements with Time Warner. Capitalized terms are as defined and
described in the accompanying consolidated financial statements, or
elsewhere herein.
The following comparative discussion of the results of
operations and financial condition of WCI includes, among other
factors, an analysis of changes in operating income before
depreciation and amortization ("EBITDA") in order to eliminate the
effect on WCI's operating performance of significant amounts of
amortization of intangible assets recognized in Time Warner's $14
billion acquisition of WCI in 1989 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 WCI, 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
Three Months Ended September 30, 1996 Compared to the Three Months
Ended September 30, 1995
WCI had revenues of $900 million and net income of $41 million
for the three months ended September 30, 1996, compared to revenues
of $992 million, a loss of $16 million before an extraordinary loss
on the retirement of debt, and a net loss of $23 million for the
three months ended September 30, 1995. EBITDA increased to $133
million from $54 million. Depreciation and amortization, including
amortization related to the purchase of WCI was $92 million in both
1996 and 1995. Operating income increased to $41 million in 1996
from an operating loss of $38 million in 1995. Operating results
for 1995 included $85 million in losses relating to certain start-up
businesses and joint ventures owned by WCI which were
restructured or closed. With regard to 1996, despite maintaining
its leading domestic market share (over 22%), WCI's domestic
recorded music operating results were negatively affected by the
industry-wide softness in the overexpanded U.S. retail marketplace,
which has resulted in a number of music retail store closings and
higher returns of music product. The decline in revenues
principally related to the continuing effects from the current U.S.
retail environment, including an increase in WCI's reserve for
returns to provide for an anticipated higher level of returns, and
the absence of revenues from certain start-up businesses which are
no longer being operated by WCI. The increase in EBITDA and
operating income principally resulted from the absence of losses
from certain start-up businesses and joint ventures, and was offset
in part by the decline in the recorded music business.
WCI's equity in the pretax income of TWE was $26 million in
the third quarter of 1996, compared to $34 million in the third
quarter of 1995. TWE's operating results for the quarter ended
September 30, 1996 as compared to the quarter ended September 30,
1995 reflect a decrease in investment-related income, which more
than offset an overall increase in operating income generated by
its business segments and interest savings in 1996 on lower average
debt levels related to its debt reduction program.
Interest and other, net was $17 million of expense for the
three months ended September 30, 1996, compared to $33 million of
income for the three months ended September 30, 1995. Interest
expense decreased to $8 million from $11 million. There was other
expense, net, of $9 million in the third quarter of 1996, compared
to other income, net, of $44 million in 1995, principally because
of a decrease in investment-related income that included losses
from reductions in the carrying value of certain investments.
Nine Months Ended September 30, 1996 Compared to the Nine Months
Ended September 30, 1995
WCI had revenues of $2.759 billion and net income of $83
million for the nine months ended September 30, 1996, compared to
revenues of $2.969 billion, income of $34 million before an
extraordinary loss on the retirement of debt, and net income of $27
million for the nine months ended September 30, 1995. EBITDA
increased to $427 million from $380 million. Depreciation and
amortization, including amortization related to the purchase of WCI
was $271 million in both 1996 and 1995. Operating income was $156
million in 1996 compared to $109 million in 1995. Operating results
for 1995 included $85 million in losses relating to certain start-up
businesses and joint ventures owned by WCI which were
restructured or closed. With regard to 1996, despite maintaining
its leading domestic market share (over 22%), WCI's domestic
recorded music operating results were negatively affected by the
industry-wide softness in the overexpanded U.S. retail marketplace,
which has resulted in a number of music retail store closings and
higher returns of music product. The decline in revenues
principally related to (i) the effects from the current U.S. retail
environment, including an increase in WCI's reserve for returns to
provide for an anticipated higher level of returns (ii) a decline
in international recorded music sales and (iii) the absence of
revenues from certain start-up businesses which are no longer being
operated by WCI. The increase in EBITDA and operating income
principally resulted from the absence of losses from certain start-up
businesses and joint ventures, and was offset in part by the
decline in the recorded music business.
WCI's equity in the pretax income of TWE was $125 million for
the nine months ended September 30, 1996, compared to $80 million
for the nine months ended September 30, 1995. TWE's operating
results for the nine months ended September 30, 1996 as compared to
the nine months ended September 30, 1995 reflect an overall
increase in operating income generated by its business segments and
interest savings in 1996 on lower average debt levels related to
its debt reduction program, offset in part by a decrease in
investment-related income and an increase in minority interest
expense related to the consolidation of the operating results of
the TWE-Advance/Newhouse Partnership for a full nine month period.
Interest and other, net was $45 million of expense for the
first nine months of 1996 compared to $6 million of income for the
first nine months of 1995. Interest expense decreased to $22
million from $80 million, primarily due to lower average debt
levels associated with the recapitalization of WCI, which occurred
on April 1, 1995. There was other expense, net, of $23 million for
the first nine months of 1996, compared to other income, net, of
$86 million for the first nine months of 1995, principally because
of a decrease in investment-related income resulting from gains on
certain asset sales recognized in 1995, increased losses from
reductions in the carrying value of certain investments and a
reduction in interest income related to the resolution of a
corporate tax matter in 1995.
The relationship between income before income taxes and income
tax expense for the General Partners 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 for each of the General Partners includes all income
taxes related to its allocable share of partnership income and its
equity in the income tax expense of corporate subsidiaries of TWE.
FINANCIAL CONDITION AND LIQUIDITY
September 30, 1996
WCI had $9.2 billion of equity at September 30, 1996, compared
to $9.3 billion of equity at December 31, 1995. Cash and
equivalents increased to $165 million at September 30, 1996,
compared to $106 million at December 31, 1995. WCI had no long-term
debt due to Time Warner at the end of either period.
The total capitalization of ATC, TWOI and WCCI at September
30, 1996 consisted of equity capital of $2.3 billion, $655 million
and $817 million, respectively, compared to $2.3 billion, $644
million and $803 million at December 31, 1995, respectively.
Although these General Partners have no independent operations, it
is expected that additional tax-related and other distributions
from TWE, as well as availability under each General Partner's
revolving credit agreement with Time Warner, will continue to be
sufficient to satisfy the General Partners' obligations with
respect to their tax sharing agreements with Time Warner for the
foreseeable future.
Cash Flows
In the first nine months of 1996, WCI's cash provided by
operations amounted to $473 million and reflected $427 million of
EBITDA, $77 million of distributions from TWE and $116 million
related to a reduction in other working capital requirements,
balance sheet accounts and noncash items, less $14 million of
interest payments and $133 million of income taxes ($60 million of
which was paid to Time Warner under a tax sharing agreement). Cash
provided by WCI's operations of $619 million in the first nine
months of 1995 reflected $380 million of EBITDA, and $467 million
of distributions from TWE, less $71 million of interest payments,
$152 million of income taxes ($47 million of which was paid to Time
Warner under a tax sharing agreement) and $5 million related to an
increase in other working capital requirements, balance sheet
accounts and noncash items. Management believes that the operating
cash flow of WCI is sufficient to meet its capital and liquidity
needs for the foreseeable future without cash distributions from
TWE above those permitted by existing agreements.
WCI and the other General Partners have no claims on the
assets and cash flows of TWE except through the payment of certain
reimbursements and cash distributions. During the first nine months
of 1996, the General Partners received in aggregate $162 million,
consisting of $153 million of tax-related distributions and $9
million of stock option related distributions. During the first
nine months of 1995, the General Partners received in aggregate
$982 million, consisting of $366 million of TWE partnership income
allocated to the General Partners' senior capital interest, $575
million of tax-related distributions, $25 million of Time Warner
Service Partnership distributions and $16 million of stock option
related distributions. Of such aggregate distributions in the first
nine months of 1996 and 1995, WCI, ATC, TWOI and WCCI received $77
million and $467 million, respectively; $66 million and $400
million, respectively; $19 million and $115 million, respectively;
and $23 million and $141 million, respectively.
Foreign Currency Risk Management
Time Warner uses foreign exchange contracts primarily to
hedge the risk that unremitted or future royalties owed to WCI
domestic companies for the sale or anticipated sale of U.S.
copyrighted products abroad may be adversely affected by changes in
foreign currency exchange rates. As part of its overall strategy to
manage the level of exposure to the risk of foreign currency
exchange rate fluctuations, Time Warner hedges a portion of its
combined foreign currency exposures anticipated over the ensuing
twelve month period, including those related to WCI. At September
30, 1996, Time Warner had effectively hedged approximately half of
WCI's estimated foreign currency exposures that principally relate
to anticipated cash flows to be remitted to the U.S. over the
ensuing twelve month period, using foreign exchange contracts that
generally have maturities of three months or less, which are
generally rolled over to provide continuing coverage throughout the
year. WCI is reimbursed by or reimburses Time Warner for Time
Warner contract gains and losses related to WCI's foreign currency
exposure. Time Warner often closes foreign exchange sale contracts
by purchasing an offsetting purchase contract. At September 30,
1996, Time Warner had contracts for the sale of $500 million and
the purchase of $200 million of foreign currencies at fixed rates.
Of Time Warner's $300 million net sale contract position, $372
million of foreign exchange sale contracts and $190 million of
foreign exchange purchase contracts related to WCI's exposure,
primarily English pounds (35% of net contract position related to
WCI), Canadian dollars (15%) and German marks (36%), compared to a
net sale contract position of $232 million of foreign currencies at
December 31, 1995.
Unrealized gains or losses related to foreign exchange
contracts are recorded in income as the market value of such
contracts change; accordingly, the carrying value of foreign
exchange contracts approximates market value. The carrying value of
foreign exchange contracts was not material at September 30, 1996
and December 31, 1995. No cash is required to be received or paid
with respect to such gains and losses until the related foreign
exchange contracts are settled, generally at their respective
maturity dates. In the first nine months of 1996 and 1995, WCI had
$11 million of net gains and $7 million of net losses,
respectively, on foreign exchange contracts, which were or are
expected to be offset by corresponding decreases and increases,
respectively, in the dollar value of foreign currency royalty
payments that have been or are anticipated to be received in cash
from the sale of U.S. copyrighted products abroad. Time Warner
places foreign currency contracts with a number of major financial
institutions in order to minimize credit risk.
Based on Time Warner's outstanding foreign exchange contracts
related to WCI's exposure at September 30, 1996, each 5%
devaluation of the U.S. dollar as compared to the level of foreign
exchange rates for currencies under contract at September 30, 1996
would result in approximately $19 million of unrealized losses and
$10 million of unrealized gains on foreign exchange contracts
involving foreign currency sales and purchases, respectively.
Conversely, a 5% appreciation of the U.S. dollar would result in
$19 million of unrealized gains and $10 million of unrealized
losses, respectively. Consistent with the nature of the economic
hedge provided by such foreign exchange contracts, such unrealized
gains or losses would be offset by corresponding decreases or
increases, respectively, in the dollar value of future foreign
currency royalty payments that would be received in cash within the
ensuing twelve month period from the sale of U.S. copyrighted
products abroad.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED BALANCE SHEETS
September 30, 1996
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
ASSETS
Current assets
Cash and equivalents . . . . . . . $ 165 $ - $ - $ -
Receivables, less allowances
of $260 . . . . . . . . . . . . . 629 - - -
Inventories. . . . . . . . . . . . 181 - - -
Prepaid expenses . . . . . . . . . 596 - - -
_____ ______ _____ _____
Total current assets . . . . . . . 1,571 - - -
Investments in and amounts due
to and from TWE . . . . . . . . . 2,193 2,000 560 708
Investments in Time Warner Service
Partnerships. . . . . . . . . . . 145 134 33 23
Investments in Time Warner . . . . 86 64 17 21
Other investments. . . . . . . . . 1,610 210 59 82
Music catalogues, contracts
and copyrights. . . . . . . . . . 1,070 - - -
Goodwill . . . . . . . . . . . . . 3,755 - - -
Other assets, primarily property,
plant and equipment . . . . . . . 522 - - -
______ _______ ___ ___
Total assets . . . . . . . . . . . $10,952 $ 2,408 $ 669 $ 834
======= ======= ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and royalties payable . . $ 889 $ - $ - $ -
Other current liabilities. . . . . 416 2 - -
_____ ______ ______ _____
Total current liabilities. . . . . 1,305 2 - -
Long-term debt due to
Time Warner . . . . . . . . . . . - 17 - -
Other amounts due to
Time Warner . . . . . . . . . . . 184 49 14 17
Other liabilities. . . . . . . . . 251 1 - -
Shareholders' equity
Common stock . . . . . . . . . . . 1 1 1 1
Paid-in capital. . . . . . . . . . 10,009 2,893 830 1,033
Unrealized gains on certain
marketable securities . . . . . . 182 - - -
Retained earnings (accumulated
deficit). . . . . . . . . . . . . 172 10 (8) (9)
______ _____ _____ ______
10,364 2,904 823 1,025
<PAGE>
Due from Time Warner, net. . . . . (662) (229) (72) (89)
Reciprocal interest in Time
Warner stock . . . . . . . . . . (490) (336) (96) (119)
______ _____ ____ ____
Total shareholders' equity . . . . 9,212 2,339 655 817
______ _____ ____ ____
Total liabilities and shareholders'
equity. . . . . . . . . . . . . . $10,952 $2,408 $ 669 $ 834
======= ====== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED BALANCE SHEETS
December 31, 1995
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
ASSETS
Current assets
Cash and equivalents. . . . . . $ 106 $ - $ - $ -
Receivables, less allowances
of $308. . . . . . . . . . . . 1,162 - - -
Inventories . . . . . . . . . . 189 - - -
Prepaid expenses. . . . . . . . 519 - - -
_____ ____ _____ _____
Total current assets. . . . . . 1,976 - - -
Investments in and amounts
due to and from TWE. . . . . . 1,984 1,959 548 693
Investments in Time Warner
Service Partnerships . . . . . 143 132 33 22
Investments in Time Warner. . . 86 65 17 21
Other investments . . . . . . . 1,526 212 60 84
Music catalogues, contracts
and copyrights . . . . . . . . 1,140 - - -
Goodwill. . . . . . . . . . . . 3,849 - - -
Other assets, primarily property,
plant and equipment. . . . . . 532 - - -
_______ ______ _____ _____
Total assets. . . . . . . . . . $11,236 $2,368 $ 658 $ 820
======= ====== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts and royalties
payable. . . . . . . . . . . . $ 840 $ - $ - $ -
Other current liabilities . . . 642 2 - -
_______ ______ ______ _____
Total current liabilities . . . 1,482 2 - -
Long-term debt due to
Time Warner . . . . . . . . . - 17 - -
Other amounts due to
Time Warner . . . . . . . . . 140 49 14 17
Other liabilities. . . . . . . 272 3 - -
Shareholders' equity
Common stock . . . . . . . . . 1 1 1 1
Paid-in capital. . . . . . . . 10,009 2,893 830 1,034
Unrealized gains (losses) on
certain marketable
securities . . . . . . . . . 117 (1) - -
Retained earnings (accumulated
deficit). . . . . . . . . . 84 (46) (25) (30)
______ _____ ___ _____
10,211 2,847 806 1,005
<PAGE>
Due from Time Warner, net . . (379) (214) (66) (83)
Reciprocal interest in
Time Warner stock. . . . . (490) (336) (96) (119)
_____ _____ _____ _____
Total shareholders'
equity. . . . . . . . . . 9,342 2,297 644 803
_____ _____ _____ _____
Total liabilities and
shareholders' equity. . . $11,236 $ 2,368 $ 658 $ 820
======= ======= ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1996
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
Revenues (a) . . . . . . . $900 $ - $ - $ -
____ ____ ____ ____
Cost of revenues (a)(b). . 677 - - -
Selling, general and
administrative (a)(b) . . 182 - - -
____ ____ ____ ____
Operating expenses . . . . 859 - - -
____ ____ ____ ____
Business segment operating
income. . . . . . . . . . 41 - - -
Equity in pretax income of
TWE (a) . . . . . . . . . 26 23 6 8
Interest and other,
net (a). . . . . . . . . (17) 7 2 2
____ ____ ____ ____
Income before income
taxes . . . . . . . . . . 50 30 8 10
Income taxes (a) . . . . . (9) (14) (4) (6)
____ ____ ____ ____
Net income . . . . . . . . $ 41 $ 16 $ 4 $ 4
==== ==== ==== ====
__________________________
(a) Includes the following income (expenses) resulting from
transactions with Time Warner, TWE or equity investees of the
General Partners:
Revenues . . . . . . . . . $ 45 $ - $ - $ -
Cost of revenues . . . . . . (15) - - -
Selling, general and
administrative. . . . . . . 12 - - -
Equity in pretax income
of TWE . . . . . . . . . . (6) - - -
Interest and other, net. . . 8 - - -
Income taxes . . . . . . . . 8 (10) (3) (5)
(b) Includes depreciation and
amortization expense of:. . $ 92 $ - $ - $ -
==== ==== ==== ====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, 1995
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
Revenues (a) . . . . . . . . . $ 992 $ - $ - $ -
_____ _____ _____ _____
Cost of revenues (a)(b). . . . 784 - - -
Selling, general and
administrative (a)(b) . . . . 246 - - -
_____ _____ _____ _____
Operating expenses . . . . . . 1,030 - - -
_____ _____ _____ _____
Business segment operating
loss. . . . . . . . . . . . . (38) - - -
Equity in pretax income
of TWE (a) . . . . . . . . . 34 30 9 10
Interest and other, net (a). . 33 30 9 11
_____ _____ _____ _____
Income before income
taxes . . . . . . . . . . . . 29 60 18 21
Income taxes (a) . . . . . . . (45) (31) (9) (10)
_____ _____ _____ _____
Income (loss) before
extraordinary item. . . . . . (16) 29 9 11
Extraordinary loss on retirement
of debt, net of $4, $4, $1 and
$1 million income
tax benefit . . . . . . . . . (7) (6) (2) (2)
_____ _____ _____ _____
Net income (loss). . . . . . . $ (23) $ 23 $ 7 $ 9
===== ===== ===== =====
_______________________
(a) Includes the following income (expenses) resulting from
transactions with Time Warner, TWE or equity investees of the
General Partners:
Revenues . . . . . . . . . . . . $ 46 $ - $ - $ -
Cost of revenues . . . . . . . . (17) - - -
Selling, general and
administrative. . . . . . . . . 7 - - -
Equity in pretax income of TWE . (3) - - -
Interest and other, net. . . . . 48 - - -
Income taxes . . . . . . . . . . (13) (21) (6) (6)
(b) Includes depreciation
and amortization expense of:. . $ 92 $ - $ - $ -
===== ====== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1996
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
Revenues (a) . . . . . . . . . $2,759 $ - $ - $ -
______ _____ _____ _____
Cost of revenues (a)(b). . . . 2,028 - - -
Selling, general and
administrative (a)(b). . . . 575 - - -
_____ _____ _____ _____
Operating expenses . . . . . 2,603 - - -
_____ _____ _____ _____
Business segment
operating income. . . . . . 156 - - -
Equity in pretax income
of TWE (a) . . . . . . . . 125 107 30 38
Interest and other,
net (a). . . . . . . . . . (45) 17 5 6
____ ____ ____ ____
Income before income
taxes . . . . . . . . . . . 236 124 35 44
Income taxes (a) . . . . . . (153) (66) (19) (24)
_____ _____ _____ _____
Net income . . . . . . . . . $ 83 $ 58 $ 16 $ 20
===== ===== ===== =====
_______________________
(a) Includes the following income (expenses) resulting from
transactions with Time Warner, TWE or equity investees of the
General Partners:
Revenues . . . . . . . . . . $ 144 $ - $ - $ -
Cost of revenues . . . . . . (42) - - -
Selling, general and
administrative. . . . . . . 36 - - -
Equity in pretax income
of TWE . . . . . . . . . . (13) - - -
Interest and other,
net . . . . . . . . . . . 36 - - -
Income taxes . . . . . . . (60) (46) (13) (17)
(b) Includes depreciation
and amortization
expense of: . . . . . . . $ 271 $ - $ - -
===== ===== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
Nine Months Ended September 30, 1995
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
Revenues (a) . . . . . . . . $2,969 $ - $ - $ -
Cost of revenues (a)(b). . . 2,128 - - -
Selling, general and
administrative (a)(b) . . . 732 - - -
Operating expenses . . . . . 2,860 - - -
______ _____ _____ _____
Business segment operating
income. . . . . . . . . . . 109 - - -
Equity in pretax income
of TWE (a) . . . . . . . . 80 69 20 24
Interest and other,
net (a) . . . . . . . . . . 6 119 17 21
______ _____ _____ _____
Income before income taxes . . 195 188 37 45
Income taxes (a) . . . . . . . (161) (94) (20) (24)
______ _____ _____ _____
Income before extraordinary
item . . . . . . . . . . . . 34 94 17 21
Extraordinary loss on
retirement of debt,
net of $4, $4, $1 and
$1 million income
tax benefit . . . . . . . . . . (7) (6) (2) (2)
______ _____ _____ _____
Net income . . . . . . . . . . . $ 27 $ 88 $ 15 $ 19
====== ===== ===== =====
_______________________
(a) Includes the following income (expenses) resulting from
transactions with Time Warner, TWE or equity investees of the
General Partners:
Revenues . . . . . . . . . . . . $133 $ - $ - $ -
Cost of revenues . . . . . . . . (45) - - -
Selling, general and
administrative. . . . . . . . . 23 - - -
Equity in pretax income
of TWE . . . . . . . . . . . . (9) - - -
Interest and other, net. . . . . (32) - - -
Income taxes . . . . . . . . . . (47) (69) (13) (15)
(b) Includes depreciation
and amortization
expense of: . . . . . . . . . . $271 $ - $ - $ -
===== ===== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1996
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
OPERATIONS
Net income. . . . . . . . . . $ 83 $ 58 $ 16 $ 20
Adjustments for noncash
and nonoperating items:
Depreciation and
amortization . . . . . . . . 271 - - -
Excess of equity in pretax
income of TWE over
distributions. . . . . . . . (48) (41) (11) (15)
Equity in income of other
investee companies, net of
distributions. . . . . . . . (21) - - -
Changes in operating assets
and liabilities. . . . . . . 188 2 2 2
_____ _____ _____ _____
Cash provided by operations. . 473 19 7 7
_____ _____ _____ _____
INVESTING ACTIVITIES
Investments and
acquisitions . . . . . . . . (45) - - -
Capital expenditures. . . . . (89) - - -
Investment proceeds . . . . . 7 - - -
_____ _____ _____ _____
Cash used by investing
activities. . . . . . . . . (127) - - -
_____ _____ _____ _____
FINANCING ACTIVITIES
Dividends. . . . . . . . . . (4) (4) (1) (1)
Increase in amounts due
from Time Warner, net . . . (283) (15) (6) (6)
_____ _____ _____ _____
Cash used by financing
activities . . . . . . . . (287) (19) (7) (7)
_____ _____ _____ _____
INCREASE IN CASH AND
EQUIVALENTS. . . . . . . . 59 - - -
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD. . . . 106 - - -
_____ _____ _____ _____
CASH AND EQUIVALENTS AT
END OF PERIOD. . . . . . . $165 $ - $ - $ -
===== ===== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1995
(Unaudited)
WCI ATC TWOI WCCI
___ ___ ____ ____
(millions)
OPERATIONS
Net income . . . . . . . . . $ 27 $ 88 $ 15 $ 19
Adjustments for noncash and
nonoperating items:
Extraordinary loss on
retirement of debt . . . . . 7 6 2 2
Depreciation and
amortization. . . . . . . . . 271 - - -
Excess of distributions over
equity in pretax income
of TWE. . . . . . . . . . . . 387 331 95 117
Equity in income of other
investee companies, net
of distributions. . . . . . . (71) (82) (5) (7)
Changes in operating assets
and liabilities . . . . . . . (2) 10 1 1
_____ _____ _____ _____
Cash provided by operations. . 619 353 108 132
_____ _____ _____ _____
INVESTING ACTIVITIES
Investments and acquisitions . . (210) (10) (3) (4)
Capital expenditures . . . . . . (89) - - -
Investment proceeds. . . . . . . 100 - - -
_____ _____ _____ _____
Cash used by investing
activities. . . . . . . . . . . (199) (10) (3) (4)
_____ _____ _____ _____
FINANCING ACTIVITIES
Borrowings . . . . . . . . . . . 9 48 7 9
Debt repayments. . . . . . . . . (177) (58) (9) (11)
Capital contributions. . . . . . 142 - - -
Dividends. . . . . . . . . . . . (182) (155) (45) (55)
Increase in amounts due
from Time Warner, net . . . . . (252) (178) (58) (71)
_____ _____ _____ _____
Cash used by financing
activities. . . . . . . . . . . (460) (343) (105) (128)
_____ _____ _____ _____
DECREASE IN CASH AND
EQUIVALENTS . . . . . . . . . . (40) - - -
CASH AND EQUIVALENTS AT
BEGINNING OF PERIOD. . . . . . 148 - - -
_____ _____ _____ _____
CASH AND EQUIVALENTS AT
END OF PERIOD. . . . . . . . . $108 $ - $ - $ -
===== ===== ===== =====
See accompanying notes.
<PAGE>
TWE GENERAL PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
On June 30, 1992, thirteen direct or indirect subsidiaries of
Time Warner Companies, Inc. ("Time Warner") contributed the assets
and liabilities or the rights to the cash flows of substantially
all of Time Warner's Filmed Entertainment, Programming-HBO and
Cable businesses to Time Warner Entertainment Company, L.P., a
Delaware limited partnership ("TWE"), for general partnership
interests, and each general partner guaranteed a pro rata portion
of substantially all of TWE's debt and accrued interest based on
the relative fair value of the net assets each contributed to TWE
(the "General Partner Guarantees", see Note 3). Nine of the
thirteen original general partners have been merged or dissolved
into the other four. Warner Communications Inc. ("WCI", a
subsidiary of Time Warner), American Television and Communications
Corporation ("ATC", a subsidiary of Time Warner), Warner Cable
Communications Inc. ("WCCI", a consolidated subsidiary of WCI) and
Time Warner Operations Inc. ("TWOI", formerly Time Warner Cable
Inc., a subsidiary of Time Warner) are the four remaining general
partners of TWE. They have succeeded to the general partnership
interests and have assumed the General Partner Guarantees of the
nine former general partners. WCI, ATC, WCCI, TWOI and, where
appropriate, the former general partners are referred to herein as
the "General Partners".
In lieu of contributing certain assets to the partnership at
its capitalization in 1992 (the "Beneficial Assets"), the General
Partners assigned to TWE the net cash flow generated by such assets
or agreed to pay an amount equal to the net cash flow generated by
such assets. TWE has the right to receive from the General
Partners, at the limited partner's option, an amount equal to the
fair value of the Beneficial Assets, net of associated liabilities,
that had not been contributed to TWE as of June 30, 1996, rather
than continuing to receive the net cash flow, or an amount equal to
the net cash flow, generated by such Beneficial Assets. The
consolidated financial statements of the General Partners exclude
the Beneficial Assets.
WCI conducts substantially all of Time Warner's Music
operations, which include copyrighted music from many of the
world's leading recording artists that is produced and distributed
from a family of established record labels such as Warner Bros.
Records, the Atlantic and Elektra Entertainment Groups and Warner
Music International. The remaining General Partners do not conduct
operations independent of their ownership interests in TWE and
certain other investments.
Basis of Presentation
The consolidated financial statements of each General Partner
include 100% of its assets, liabilities, revenues, expenses,
income, loss and cash flows and that of all companies in which the
General Partner has a controlling voting interest ("subsidiaries"),
as if the General Partner and its subsidiaries were a single
company. Investments in TWE, and certain other companies in which
the General Partners have significant influence but less than a
controlling voting interest, are accounted for using the equity
method. As a result of a recapitalization of WCI effective as of
April 1, 1995 and cash distributions received from TWE by each of
the General Partners (Note 2), certain amounts due from or to Time
Warner are reflected by the General Partners as a separate
component of shareholders' equity under the caption "Due from Time
Warner, net."
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.
Certain reclassifications have been made to the 1995 financial
statements to conform to the 1996 presentation. The accompanying
financial statements should be read in conjunction with the audited
consolidated financial statements of the General Partners for the
year ended December 31, 1995.
Effective January 1, 1996, WCI adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of"
("FAS 121"), which established standards for the recognition and
measurement of impairment losses on long-lived assets and certain
intangible assets. The adoption of FAS 121 did not have a material
effect on WCI's financial statements.
2. TWE
The General Partners' investments in and amounts due to or
from TWE at September 30, 1996 and December 31, 1995 are as follows
(millions):
September 30, 1996 WCI ATC TWOI WCCI
___ ___ ____ ____
Investment in TWE. . . . . . . . $2,250 $1,951 $ 546 $ 691
Stock option related
distributions due from TWE. . . 58 49 14 17
Other liabilities due to TWE,
principally related to
home video distribution. . . . (286) - - -
Other receivables due
from TWE . . . . . . . . . . . 171 - - -
_____ ______ ______ ______
Total . . . . . . . . . . . . . $2,193 $2,000 $ 560 $ 708
====== ====== ====== ======
December 31, 1995 WCI ATC TWOI WCCI
___ ___ ____ ____
Investment in TWE . . . . . . $2,201 $1,909 $ 534 $ 675
Stock option related
distributions due from TWE. . 58 50 14 18
Other liabilities due to TWE,
principally related to
home video distribution . . . (351) - - -
Other receivables due
from TWE. . . . . . . . . . . 76 - - -
______ ______ ______ ______
Total. . . . . . . . . . . . . $1,984 $1,959 $ 548 $ 693
====== ====== ====== ======
TWE was capitalized on June 30, 1992 to own and operate
substantially all of the Filmed Entertainment, Programming-HBO and
Cable businesses previously owned by the General Partners. The
General Partners in the aggregate hold, directly or indirectly,
63.27% of the pro rata priority capital ("Series A Capital") and
residual equity capital ("Residual Capital") of TWE and 100% of the
senior priority capital ("Senior Capital") and junior priority
capital ("Series B Capital") of TWE. Time Warner acquired 11.22% of
the Series A Capital and Residual Capital limited partnership
interests previously held by subsidiaries of each of ITOCHU
Corporation and Toshiba Corporation in 1995. 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").
The TWE partnership agreement provides for special allocations
of income, loss and distributions of partnership capital, including
priority distributions in the event of liquidation. No portion of
TWE's net income has been allocated to the limited partnership
interests.
Set forth below is summarized financial information of TWE,
which reflects the consolidation by TWE of the TWE-Advance/Newhouse
Partnership effective as of April 1, 1995, the deconsolidation of
Six Flags Entertainment Corporation ("Six Flags") effective as of
June 23, 1995 and the consolidation of Paragon Communications
effective as of July 6, 1995:
TIME WARNER ENTERTAINMENT COMPANY, L.P.
Three Months Nine Months
Ended Ended
September 30, September 30,
_____________ _____________
1996 1995 1996 1995
____ ____ ____ ____
(millions)
Operating Statement Information
Revenues . . . . . . . . . . $2,718 $2,324 $7,811 $6,762
Depreciation and
amortization. . . . . . . . 322 260 904 761
Business segment operating
income. . . . . . . . . . . 271 268 836 725
Interest and other, net. . . 147 127 368 423
Minority interest. . . . . . 52 51 154 86
Income before income taxes . 55 73 262 169
Income before extraordinary
item . . . . . . . . . . . . 45 47 213 107
Net income . . . . . . . . . . 45 23 213 83
<PAGE>
Nine Months
Ended
September 30,
_______________
1996 1995
(millions)
Cash Flow Information
Cash provided by operations. . . . . . . . . . . . $1,322 $1,194
Capital expenditures . . . . . . . . . . . . . . . (1,228) (983)
Investments and acquisitions . . . . . . . . . . . (86) (130)
Investment proceeds. . . . . . . . . . . . . . . . 450 1,031
Borrowings . . . . . . . . . . . . . . . . . . . . 190 2,041
Debt repayments. . . . . . . . . . . . . . . . . . (697) (3,135)
Collections on note receivable from U S WEST . . . 169 375
Capital distributions. . . . . . . . . . . . . . . (162) (982)
Decrease in cash and equivalents . . . . . . . . . - (632)
September 30, December 31,
1996 1995
____________ ____________
(millions)
Balance Sheet Information
Cash and equivalents . . . . . . . . . . . . $ 209 $ 209
Total current assets . . . . . . . . . . . . 3,093 2,909
Total assets . . . . . . . . . . . . . . . . 19,441 18,905
Total current liabilities. . . . . . . . . . 3,597 3,214
Long-term debt . . . . . . . . . . . . . . . 5,673 6,137
Minority interests . . . . . . . . . . . . . 900 726
General Partners' Senior Capital . . . . . . 1,513 1,426
Partners' capital. . . . . . . . . . . . . . 6,638 6,478
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 September 30, 1996 and December 31, 1995, the
General Partners had recorded $121 million and $122 million,
respectively, of stock option related distributions due from TWE,
based on closing prices of Time Warner common stock of $38.50 and
$37.875, respectively. Time Warner is paid when the options are
exercised. The General Partners also receive tax-related
distributions from TWE. The payment of such distributions was
previously subject to restrictions until July 1995 and is now made
to the General Partners on a current basis. During the first nine
months ended September 30, 1996, the General Partners received
distributions from TWE in the amount of $162 million, consisting of
$153 million of tax-related distributions and $9 million of stock
option related distributions. During the first nine months ended
September 30, 1995, the General Partners received distributions
from TWE in the amount of $982 million, consisting of $366 million
of TWE partnership income allocated to the General Partners' Senior
Capital interest, $575 million of tax-related distributions, $25
million of Time Warner Service Partnership distributions and $16
million of stock option related distributions. Of such aggregate
distributions in the first nine months of 1996 and 1995, WCI
received $77 million and $467 million, respectively; ATC received
$66 million and $400 million, respectively; TWOI received $19
million and $115 million, respectively; and WCCI received $23
million and $141 million, respectively.
In September 1995, TWE reacquired substantially all of the
assets of the Time Warner Service Partnerships, subject to the
liabilities relating thereto (the "Time Warner Service Partnership
Assets"), in exchange for Series B Capital interests in TWE equal
to approximately $400 million. The reacquisition was recorded for
financial statement purposes by TWE based on the $124 million
historical cost of the Time Warner Service Partnership Assets.
Prior to such reacquisition, the Time Warner Service Partnerships
owned and operated certain assets of TWE which had been distributed
to the General Partners in September 1993 in order to ensure
compliance with the Modification of Final Judgment entered on
August 24, 1982 by the United States District Court for the
District of Columbia applicable to U S WEST and its affiliated
companies, which may have included TWE. Prior to September 1995,
TWE was required to make quarterly cash distributions related to
its Series B Capital in the amount of $12.5 million to the General
Partners, which the General Partners were then required to
contribute to the Time Warner Service Partnerships.
On April 1, 1995, TWE formed a cable television joint venture
with the Advance/Newhouse Partnership ("Advance/Newhouse") to which
Advance/Newhouse and TWE contributed cable television systems (or
interests therein) serving approximately 4.5 million subscribers,
as well as certain foreign cable investments and programming
investments that included Advance/Newhouse's 10% interest in
Primestar Partners, L.P. TWE owns a two-thirds equity interest in
the TWE-Advance/Newhouse Partnership and is the managing partner.
TWE consolidates the partnership and the one-third equity interest
owned by Advance/Newhouse is reflected in TWE's consolidated
financial statements as minority interest. In accordance with the
partnership agreement, Advance/Newhouse can require TWE to purchase
its equity interest for fair market value at specified intervals
following the death of both of its principal shareholders.
Beginning in the third year, either partner can initiate a
dissolution in which TWE would receive two-thirds and Advance/Newhouse
would receive one-third of the partnership's net assets.
The assets contributed by TWE and Advance/Newhouse to the
partnership were recorded at their predecessor's historical cost.
No gain was recognized by TWE upon the capitalization of the
partnership.
On June 23, 1995, TWE sold 51% of its interest in Six Flags to
an investment group led by Boston Ventures for $204 million and
received $640 million in additional proceeds from Six Flags,
representing payment of certain intercompany indebtedness and
licensing fees. As a result of the transaction, Six Flags has been
deconsolidated and TWE's remaining 49% interest in Six Flags is
accounted for under the equity method of accounting. TWE reduced
debt by approximately $850 million in 1995 in connection with the
transaction, and a portion of the income on the transaction has
been deferred by TWE principally as a result of its guarantee of
certain third-party, zero-coupon indebtedness of Six Flags due in
1999.
3. GENERAL PARTNER GUARANTEES
Each General Partner has guaranteed a pro rata portion of
approximately $5.4 billion of TWE's debt and accrued interest at
September 30, 1996, based on the relative fair value of the net
assets each General Partner contributed to TWE (the "General
Partner Guarantees"). Such indebtedness is recourse to each General
Partner only to the extent of its guarantee. There are generally no
restrictions on the ability of the General Partner guarantors to
transfer material assets, other than TWE assets, to parties who are
not guarantors.
The portion of TWE debt and accrued interest at September 30,
1996 that was guaranteed by each General Partner, individually and
on a consolidated basis for each General Partner and its
subsidiaries, is set forth below:
Total Guaranteed by
Total Guaranteed by Each General Partner
Each General Partner and its Subsidiaries
____________________ ____________________
% Amount % Amount
_ ______ _ ______
(dollars in millions)
General Partner
_______________
WCI. . . . . . . . . 33.19 $1,793 47.58 $2,570
ATC. . . . . . . . . 40.73 2,200 40.73 2,200
TWOI . . . . . . . . 11.69 632 11.69 632
WCCI, a subsidiary
of WCI. . . . . . . 14.39 777 14.39 777
_____ ______
Total. . . . . . . . 100.00 $5,402 * *
====== ======
_______________
* Adds to more than 100% and $5.402 billion, respectively, because of the
parent-subsidiary relationship between WCI and WCCI.
4. SHAREHOLDERS' EQUITY
Changes in shareholders' equity for WCI are as follows:
Nine Months
Ended
September 30,
_____________
1996 1995
____ ____
(millions)
Balance at beginning of year . . . . . . . . . . . $9,342 $7,105
Net income . . . . . . . . . . . . . . . . . . . . 83 27
Increase in stock option distribution
liability to Time Warner. . . . . . . . . . . . . (4) (50)
Capital contributions. . . . . . . . . . . . . . . - 2,642
Dividends. . . . . . . . . . . . . . . . . . . . . - (174)
Transfers to Time Warner, net. . . . . . . . . . . (283) (252)
Unrealized gains of certain marketable
equity investments. . . . . . . . . . . . . . . . 65 22
Other. . . . . . . . . . . . . . . . . . . . . . . 9 5
______ ______
Balance at September 30. . . . . . . . . . . . . . $9,212 $9,325
====== ======
In 1993, WCI declared and paid a special dividend to Time
Warner in the form of a $3 billion subordinated reset note due 2008
and entered into a $1 billion revolving credit agreement with Time
Warner, under which $500 million was borrowed and used to prepay a
corresponding portion of the subordinated reset note. On April 1,
1995, such debt obligations to Time Warner were satisfied as part
of a recapitalization of WCI, in which Time Warner made a capital
contribution to WCI, consisting of a $2.5 billion subordinated
reset note receivable due from WCI and cash of $142 million. WCI
used the cash proceeds therefrom to repay its obligations to Time
Warner under their revolving credit agreement.
5. 1995 CLOSURES AND RESTRUCTURINGS
In the third quarter of 1995, WCI recorded $85 million in
losses relating to certain of its businesses and joint ventures
that were restructured or closed. The losses were primarily related
to Warner Music Enterprises, one of WCI's direct marketing efforts,
and the write-off of its related direct mail order assets that were
not recoverable due to the closure of this business.
6. CONTINGENCIES
Pending legal proceedings are substantially limited to
litigation incidental to businesses of the General Partners. In the
opinion of counsel and management, the ultimate resolution of these
matters will not have a material effect on the consolidated
financial statements of the General Partners.
7. ADDITIONAL FINANCIAL INFORMATION
Additional financial information is as follows (millions):
WCI ATC TWOI WCCI
___ ___ ____ ____
Nine Months Ended September 30, 1996
Interest expense . . . . . . . . . . $ 22 $ 1 $ - $ -
Cash payments made for interest. . . 14 - - -
Cash payments made for income
taxes, net . . . . . . . . . . . . 133 46 13 17
Tax-related distributions
received from TWE. . . . . . . . . 73 62 18 22
WCI ATC TWOI WCCI
___ ___ ____ ____
Nine Months Ended September 30, 1995
Interest expense . . . . . . . . . . $ 80 $ 2 $ - $ -
Cash payments made for interest. . . 71 - - -
Cash payments made for income
taxes, net . . . . . . . . . . . . 152 69 13 15
Tax-related distributions
received from TWE. . . . . . . . . 274 234 67 83
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On October 8, 1996, the New York State Attorney General
began an investigation by serving a subpoena duces tecum on Time
Warner. In re New York State Attorney General's Investigation.
The subpoena seeks information regarding whether Time Warner and
Time Warner Cable may have violated Section 340 of the General
Business Law of New York and/or Sections 1 and/or 2 of the
Sherman Antitrust Act in making certain decisions regarding the
carriage of video programming services on Time Warner's cable
systems, including its decision to carry the MSNBC news service
and not the Fox News Channel ("FNC").
On October 9, 1996, an action was commenced in the
United States District Court for the Eastern District of New York
entitled Fox News Network, L.L.C. v. Time Warner Inc., Time
Warner Entertainment Company, L.P., Turner Broadcasting System,
Inc., and R.E. "Ted" Turner III. The plaintiff seeks to have
Time Warner divest the TBS assets acquired alleging that the TBS
Transaction is violative of Section 7 of the Clayton Act. The
plaintiff also seeks damages flowing from alleged violations of
Section 1 of the Sherman Act, the Donnelly Act, New York State's
antitrust statute, as well as alleged breach of contract and
fraudulent misrepresentations regarding carriage of the FNC on
defendants' cable television systems. In total, the plaintiff
seeks $1.75 billion in damages. While the schedule of the
proceedings remains the subject of dispute between the parties,
trial is tentatively set to begin April 2, 1997.
On October 7, 1996, a hearing was held to consider whether
the consummation of the TBS Transaction constituted a "change in
control" within the meaning of Time Warner Cable's franchise
agreements with the City of New York (collectively, the
"Franchise Agreements"). On October 9, 1996, the New York City
Franchise Concession and Review Committee met to consider this
issue, but took no action on the matter after the City advised
that the matter required further consideration. Effecting a
change in control within such meaning without the City's consent
could give the City various rights, which could include the right
to terminate the Franchise Agreements. Time Warner does not
believe there has been such a change in control.
On October 10, 1996, the holders of Time Warner's New York
City cable franchises filed a complaint against the City of New
York in the United States District Court for the Southern
District of New York alleging that the City's announced plan to
carry two commercial cable programs, Bloomberg Information
Television ("BIT") and the FNC, over the City's municipal access
channels is a violation of the Franchise Agreements, the 1984
Cable Act, the First Amendment, New York Public Service Law and
certain other legal rights of such holders. In addition to
seeking to enjoin the City's activity, the complaint seeks a
declaratory judgment that the TBS Transaction does not effect a
change in control for the purposes of the Franchise Agreements.
On October 11, 1996, the judge in this action issued a
temporary restraining order preventing the City from carrying
either BIT or the FNC over its municipal access channels. After
a hearing on October 28, 1996, the judge on November 6, 1996
granted the Time Warner plaintiffs a preliminary injunction that
will continue to prevent the City from carrying these services on
its municipal access channels until a trial on the matter is
completed. The City has announced its intention to appeal the
judge's decision. Thus far, all activity in this action has
related to Time Warner's request for an injunction, and
proceedings with respect to the declaratory judgment that the TBS
Transaction does not effect a change in control for the purposes
of the Franchise Agreements have not as yet commenced.
Reference is made to the Federal lawsuit filed by TWE in
November 1992 seeking to overturn major provisions of the 1992
Cable Act, described on page 36 of TWE's Quarterly Report on Form
10-Q for the quarter ended June 30, 1996 (the "June 1996 Form 10-Q").
on August 30, 1996, the D.C. Circuit Court of Appeals
rejected TWE's challenges to certain provisions of the 1984 and
1992 Cable Acts, held unripe the challenge to the program
creation provision of Section 11(c) of the 1992 Cable Act, and
consolidated the remaining challenges to Section 11(c) with Time
Warner Entertainment Company, L.P. v. FCC. On October 29, 1996,
TWE and the other plaintiffs filed a Petition for Rehearing and
Suggestion for Rehearing En Banc with the Court, asking the Court
to reconsider its application of First Amendment law and
specifically asking it to reconsider its holding that Section 15
of the 1992 Cable Act is constitutional. Amici filed a petition
asking for rehearing on the Court's holding that Section 25 of
the 1992 Cable Act is constitutional.
Reference is made to the investigation commenced in 1993 by
the Federal Trade Commission ("FTC"), described on page I-36 of
TWE's Annual Report on Form 10-K for the year ended December 31,
1995. By letter dated October 21, 1996, the FTC informed Warner
Elektra Atlantic Corporation that its investigation has been
closed.
Reference is made to the litigation entitled Robinson
and 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 36 of the
June 1996 Form 10-Q. On August 5, 1996, defendants jointly filed
a Notice of Removal from the Circuit Court of Blount County,
Tennessee, to the United States District Court for the Eastern
District of Tennessee. On August 21, 1996, plaintiffs filed a
Motion to Remand the case to the Circuit Court of Blount County,
and on October 4, 1996, defendants jointly filed their Response
in Opposition to the Motion to Remand.
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 TWE during the
quarter ended September 30, 1996.
<PAGE>
TIME WARNER ENTERTAINMENT COMPANY, L.P.
AND TWE GENERAL PARTNERS
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, each of the registrants has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
Time Warner Entertainment Company, L.P.
By: Warner Communications Inc.,
as General Partner
By:/s/ Richard J. Bressler
____________________________
Name: Richard J. Bressler
Title: Senior Vice President and
Chief Financial Officer
American Television and Communications
Corporation
Time Warner Operations Inc.
Warner Cable Communications Inc.
Warner Communications Inc.
By:/s/ Richard J. Bressler
____________________________
Name: Richard J. Bressler
Title: Senior Vice President and
Chief Financial Officer
Dated: November 14, 1996
<PAGE>
EXHIBIT INDEX
Pursuant to Item 601 of Regulation S-K
Exhibit No. Description of Exhibit
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Exhibit 27
TIME WARNER ENTERTAINMENT COMPANY, L.P.
FINANCIAL DATA SCHEDULE
This schedule contains summary financial information extracted
from the financial statements of Time Warner Entertainment Company,
L.P. for the quarter ended September 30, 1996 and is qualified in
its entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000893657
<NAME> TIME WARNER ENTERTAINMENT
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 209
<SECURITIES> 0
<RECEIVABLES> 1,908
<ALLOWANCES> 366
<INVENTORY> 1,200
<CURRENT-ASSETS> 3,093
<PP&E> 9,206
<DEPRECIATION> 3,426
<TOTAL-ASSETS> 19,441
<CURRENT-LIABILITIES> 3,597
<BONDS> 5,673
<COMMON> 0
0
0
<OTHER-SE> 6,638
<TOTAL-LIABILITY-AND-EQUITY> 19,441
<SALES> 7,811
<TOTAL-REVENUES> 7,811
<CGS> 5,250
<TOTAL-COSTS> 5,250
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 356
<INCOME-PRETAX> 262
<INCOME-TAX> 49
<INCOME-CONTINUING> 213
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 213
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
