SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
August 14, 1995
TIME WARNER INC.
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(Exact name of registrant as specified in its charter)
Delaware 1-8637 13-1388520
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
75 Rockefeller Plaza, New York, NY 10019
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(Address of principal executive offices) (zip code)
(212) 484-8000
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name or former address, if changed since last report)
<PAGE>
Item 5. Other Events.
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Time Warner Inc. ("Time Warner") and Time Warner Entertainment
Company, L.P. ("TWE"), 63.27% of the residual equity as well as
certain priority capital interests of which are owned by subsidiaries
of Time Warner, have recently entered into, or intend to enter into,
the transactions described below:
(i) on August 15, 1995, Time Warner expects to raise $363
million of net proceeds through the issuance of approximately
12.1 million Time Warner-obligated mandatorily redeemable
preferred securities of a subsidiary ("PERCS"). Cumulative cash
distributions will be payable on the PERCS at an annual rate of
4%, or $1.24 per PERCS. The PERCS will be subject to mandatory
redemption on December 23, 1997, For an amount per PERCS equal to
the lesser of $54.41, and the then market value of a Share of
common stock of Hasbro, Inc. ("Hasbro") payable in cash or, at
Time Warner's option, Hasbro common stock. Time Warner currently
has a 13.75% equity interest in Hasbro;
(ii) on August 10, 1995, Time Warner announced the partial
redemption on September 18, 1995 of $1 billion principal amount
of its 8.75% Convertible Subordinated Debentures due 2015 (the
"8.75% Convertible Debentures") for an aggregate redemption price
of $1.063 billion, including redemption premiums and accrued
interest thereon. The redemption is expected to be financed with
approximately $500 million of proceeds raised from the issuance
of 7.75% ten-year notes (the "7.75% Notes") in June 1995, $363
million of net proceeds to be raised from the issuance of the
PERCS and available cash and equivalents (the "Market
Refinancings");
(iii) on July 31, 1995, Time Warner announced the redemption
on August 15, 1995 of all of its $1.8 billion principal amount of
outstanding Redeemable Reset Notes due August 15, 2002 (the
"Reset Notes") in exchange for new securities (the "Reset Notes
Refinancing"). The Reset Notes will be redeemed in exchange for
approximately $457 million aggregate principal amount of Floating
Rate Notes due August 15, 2000, approximately $274 million
aggregate principal amount of 7.975% Notes due August 15, 2004,
approximately $548 million aggregate principal amount of 8.11%
Debentures due August 15, 2006, and approximately $548 million
aggregate principal amount of 8.18% Debentures due August 15,
2007 (collectively, the "Exchange Securities");
(iv) on July 6, 1995 (as previously reported on the Form 8-K
of Time Warner dated July 6, 1995), Time Warner acquired KBLCOM
Incorporated ("KBLCOM") which owns cable television systems
serving approximately 700,000 subscribers, and a 50% interest in
Paragon Communications ("Paragon"), which owns cable television
systems serving approximately 972,000 subscribers. The other 50%
interest in Paragon is already owned by TWE;
(v) on June 30, 1995, a wholly owned subsidiary of Time
Warner ("TWI Cable"), TWE and the TWE-Advance/Newhouse
Partnership (as defined below) executed a five-year revolving
credit facility (the "New Credit Agreement"). The New Credit
Agreement will enable such entities to refinance certain
indebtedness assumed from the companies acquired or to be
acquired in the Acquisitions (as defined below), to refinance
existing indebtedness of TWE and to finance the ongoing working
capital, capital expenditure and other corporate needs of each
borrower (the "Bank Refinancing"). The Market Refinancings, the
Reset Notes Refinancing and the Bank Refinancing are referred to
herein as the "1995 Debt Refinancings";
<PAGE>
(vi) on June 23, 1995, (A) Six Flags Entertainment
Corporation ("Six Flags") was recapitalized, (B) TWE sold 51% of
its interest in Six Flags to an investment group led by Boston
Ventures and (C) TWE granted certain licenses to Six Flags
(collectively, the "Six Flags Transaction");
(vii) on May 18, 1995, Time Warner announced the planned
sale by TWE of 15 of its unclustered cable television systems
serving approximately 144,000 subscribers, certain of which
transactions closed during the second quarter of 1995 (the
"Unclustered Cable Disposition");
(viii) on May 2, 1995, Time Warner acquired Summit
Communications Group, Inc. ("Summit"), which owns cable
television systems serving approximately 162,000 subscribers (the
"Summit Acquisition");
(ix) on April 1, 1995 (as previously reported on the Form
8-K of Time Warner dated April 1, 1995), TWE closed its
transaction (the "TWE-A/N Transaction") with the Advance/Newhouse
Partnership ("Advance/Newhouse"), pursuant to which TWE and
Advance/Newhouse formed the Time Warner
Entertainment-Advance/Newhouse Partnership, a New York general
partnership (the "TWE-Advance/Newhouse Partnership"), in which
TWE owns a two-thirds equity interest and is the managing partner
and Advance/Newhouse owns a one-third equity interest. The
TWE-Advance/Newhouse Partnership owns cable television systems
(or interests therein), serving approximately 4.5 million
subscribers, as well as certain foreign cable investments and
certain programming investments; and
(x) on February 6, 1995 (as previously reported on the Form
8-K of Time Warner dated February 6, 1995), Time Warner entered
into certain agreements with Cablevision Industries Corporation
("CVI"), certain affiliated entities of CVI (the "Gerry
Companies"), the direct holders of certain interests in the Gerry
Companies and Alan Gerry, the principal stockholder of CVI and
the Gerry Companies (the "CVI Acquisition"), pursuant to which
Time Warner will acquire CVI, and Time Warner or certain
subsidiaries of Time Warner will acquire each of the Gerry
Companies. CVI and the Gerry Companies own cable television
systems serving approximately 1.3 million subscribers.
The Unclustered Cable Disposition and the Six Flags Transaction
are referred to herein as the "Asset Sale Transactions"; the Summit
Acquisition, KBLCOM Acquisition and CVI Acquisition are referred to
herein as the "Acquisitions"; the Acquisitions and the TWE-A/N
Transaction are referred to herein as the "Cable Transactions" and the
Asset Sale Transactions, the Cable Transactions and the 1995 Debt
Refinancings are referred to herein as the "Transactions".
Pro Forma Consolidated Condensed Financial Statements
The following pro forma consolidated condensed balance sheets of
Time Warner and the Time Warner Entertainment Group (the
"Entertainment Group"), principally consisting of TWE, at June 30,
1995 give effect to the Unclustered Cable Disposition and the 1995
Debt Refinancings and, with respect to the balance sheet of Time
Warner only, also give effect to the KBLCOM Acquisition and the CVI
Acquisition, in each case as if such transactions occurred at such
date. The Summit Acquisition, the TWE-A/N Transaction and the Six
Flags Transaction are already reflected in the respective historical
balance sheets of Time Warner and the Entertainment Group as of June
30, 1995. The following pro forma consolidated condensed statements of
operations of Time Warner and the Entertainment Group for the six
months ended June 30, 1995 and the year ended December 31, 1994 give
effect to the Asset Sale Transactions, the TWE-A/N Transaction and the
1995 Debt Refinancings and, with respect to the statements of
operations of Time Warner only, also give effect to the Acquisitions,
in each case as if the transactions occurred at the beginning of such
periods. The pro forma consolidated condensed financial
<PAGE>
statements should be read in conjunction with the historical financial
statements of Time Warner and TWE, including the notes thereto, which
are contained in the Time Warner Quarterly Report on Form 10-Q for the
six months ended June 30, 1995 and the Time Warner Annual Report on
Form 10-K for the year ended December 31, 1994, as well as the
historical financial statements of (i) Vision Cable Division of Vision
Cable Communications Inc. and Subsidiaries and Newhouse Broadcasting
Cable Division of Newhouse Broadcasting Corporation and Subsidiaries
(which entities contributed substantially all of their assets to
Advance/Newhouse prior to the closing of the TWE-A/N Transaction),
(ii) Cablevision Industries Limited Partnership and the Combined
Entities (which financial statements are the combined financial
statements of the Gerry Companies), (iii) CVI, (iv) KBLCOM and (v)
Summit. The pro forma consolidated condensed financial statements have
been derived from the historical financial statements of the
respective entities as of and for the six months ended June 30, 1995
and for the year ended December 31, 1994, except in the case of (1)
the Newhouse Broadcasting Cable Division of Newhouse Broadcasting
Corporation and Subsidiaries, which entities have different fiscal
years and were acquired on April 1, 1995; consequently, such pro forma
financial statements have been derived from the unaudited combined
financial statements of such entities for the three months ended
January 31, 1995 and for the twelve months ended October 31, 1994, (2)
the Vision Cable Division of Vision Cable Communications Inc. and
Subsidiaries which were acquired on April 1, 1995 and consequently,
such pro forma financial statements have been derived from the
unaudited combined financial statements of such entities for the three
months ended March 31, 1995 and for the year ended December 31, 1994
(which financial statements, in the case of (1) and (2) have been
previously filed in connection with Time Warner's Current Report on
Form 8-K dated May 30, 1995) and (3) Summit, which was acquired on May
2, 1995 and consequently, such pro forma financial statements have
been derived from the unaudited consolidated financial statements for
such entity for the four months ended May 2, 1995 and for the year
ended December 31, 1994. Historical financial statements are (a)
attached as Exhibits hereto with respect to the financial statements
of the Gerry Companies and KBLCOM as of and for the six months ended
June 30, 1995, (b) incorporated herein by reference with respect to
the financial statements of CVI as of and for the six months ended
June 30, 1995 and (c) previously filed in connection with Time
Warner's Current Report on Form 8-K dated May 30, 1995, with respect
to the financial statements of the Gerry Companies, CVI, KBLCOM and
Summit as of and for the year ended December 31, 1994.
The pro forma consolidated condensed financial statements are
presented for informational purposes only and are not necessarily
indicative of the financial position or operating results that would
have occurred if the Transactions had been consummated as of the dates
indicated, nor are they necessarily indicative of future financial
conditions or operating results.
TWE consolidates the TWE-Advance/Newhouse Partnership and the
one-third equity interest owned by Advance/Newhouse is reflected in
the Entertainment Group historical balance sheet as minority interest.
In accordance with the partnership agreement for the
TWE-Advance/Newhouse Partnership, Advance/Newhouse may require TWE to
purchase its equity interest for fair market value at specified
intervals following the death of both of its principal shareholders.
Following the third anniversary of the closing of the TWE-A/N
Transaction, 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 TWE-Advance/Newhouse Partnership were recorded
at their predecessor's historical cost. No gain was recognized by TWE
upon the capitalization of the TWE-Advance/Newhouse Partnership.
As a result of the Acquisitions, Time Warner has acquired or will
acquire cable television systems serving approximately 2.2 million
subscribers and a 50% interest in Paragon, which owns cable television
systems serving approximately 972,000 subscribers (the other 50%
interest is already owned by TWE). As described below, in order to
consummate the Acquisitions, Time Warner has or will issue
approximately 5.1 million shares of Common Stock, par value $1.00 per
share, of Time Warner (the "Common Stock") and approximately $2.1
billion aggregate
<PAGE>
liquidation value of new series of convertible preferred stock, and
has or will assume or incur, directly or indirectly, approximately
$3.3 billion of debt.
In connection with the Summit Acquisition, Time Warner issued
1,550,936 shares of Common Stock and 3,264,508 shares of a new series
of convertible preferred stock (the "Series C Preferred Stock") and
assumed or incurred approximately $146 million of indebtedness. The
Series C Preferred Stock has a liquidation value of $100 per share, is
convertible into 6.8 million shares of Common Stock at a conversion
price of $48 per share (based on its liquidation value), receives for
five years an annual dividend per share equal to the greater of $3.75
and an amount equal to the dividends paid on the Common Stock into
which a share of Series C Preferred Stock may be converted, and is
redeemable for cash at the liquidation value plus unpaid dividends
after five years, or exchangeable for Common Stock by the holder
beginning after the third year and by Time Warner after the fourth
year at the stated conversion price plus a declining premium in years
four and five and no premium thereafter.
In connection with the KBLCOM Acquisition, Time Warner issued one
million shares of Common Stock and 11 million shares of a new series
of convertible preferred stock (the "Series D Preferred Stock") and
assumed or incurred approximately $1.2 billion of indebtedness,
including $113 million of Time Warner's allocable share of Paragon's
indebtedness. The Series D Preferred Stock has a liquidation value of
$100 per share, is convertible into 22.9 million shares of Common
Stock at a conversion price of $48 per share (based on its liquidation
value), and receives for four years an annual dividend per share equal
to the greater of $3.75 and an amount equal to the dividends paid on
the Common Stock into which a share of Series D Preferred Stock may be
converted. Time Warner has the right to exchange the Series D
Preferred Stock for Common Stock at the stated conversion price after
four years and, after five years, Time Warner has the right to redeem
the Series D Preferred Stock, in whole or in part, for cash at the
liquidation value plus accrued dividends.
In connection with the CVI Acquisition, Time Warner will issue
2.5 million shares of Common Stock and 3.25 million shares each of two
new series of convertible preferred stock (the "Series E Preferred
Stock" and "Series F Preferred Stock") and assume or incur
approximately $2 billion of indebtedness. The Series E Preferred Stock
and Series F Preferred Stock will have a liquidation value of $100 per
share, will be convertible into an aggregate of 13.5 million shares of
Common Stock at a conversion price of $48 per share (based on its
liquidation value), and will receive, for a period of five years with
respect to the Series E Preferred Stock and a period of four years
with respect to the Series F Preferred Stock, an annual dividend per
share equal to the greater of $3.75 and an amount equal to the
dividends paid on the Common Stock into which a share of Series E
Preferred Stock or Series F Preferred Stock may be converted. Time
Warner will have the right to exchange each of the Series E Preferred
Stock and Series F Preferred Stock for Common Stock at the stated
conversion price after five years and four years, respectively, and
will be permitted to redeem each series, in whole or in part, for cash
at the liquidation value plus accrued dividends, in each case after
five years. The amount of Series F Preferred Stock and Common Stock to
be issued in connection with the CVI Acquisition will be adjusted if
the aggregate level of indebtedness, negative working capital and
related items at the closing differs from approximately $2 billion.
To the extent that any of the Series C Preferred Stock, Series D
Preferred Stock, Series E Preferred Stock or Series F Preferred Stock
remains outstanding at the end of the period in which the minimum
$3.75 per share dividend is to be paid, the holders thereafter will
receive dividends equal to the dividend declared on shares of Common
Stock multiplied by the number of shares into which their shares of
preferred stock are convertible. Holders of each series of preferred
stock are and will be entitled to vote with the Common Stock on all
matters on which the Common Stock is entitled to vote, and each share
of each such series is and will be entitled to two votes on any such
matter.
<PAGE>
The Acquisitions have been or will be accounted for by the
purchase method of accounting for business combinations and,
accordingly, the estimated cost to acquire such assets has been or
will be allocated to the underlying net assets in proportion to their
respective fair values. The valuations and other studies which will
provide the basis for such an allocation have not been completed. As
more fully described in the notes to the pro forma consolidated
condensed financial statements, a preliminary allocation of the excess
of cost over the book value of the net assets acquired or to be
acquired has been made for pro forma purposes principally to
investments and cable television franchises in proportion to their
estimated fair values.
In connection with the Cable Transactions, TWE has entered or
will enter into management services agreements pursuant to which TWE
is and will be responsible for the management and operations of the
cable television systems owned by Time Warner and the
TWE-Advance/Newhouse Partnership, other than the cable television
systems located within the 14-state telephone service area of U S
WEST, Inc. The pro forma consolidated condensed statements of
operations of Time Warner and the Entertainment Group each reflect
annual management fees to be paid by Time Warner and the
TWE-Advance/Newhouse Partnership to TWE, based on a preliminary
allocation, which management believes to be reasonable, of the
corporate expenses of the cable division of TWE in proportion to the
respective number of cable subscribers of Time Warner and the
TWE-Advance/Newhouse Partnership to be managed by TWE's cable division
as a percentage of the aggregate number of subscribers of all cable
television systems to be managed by TWE's cable division. As a result
of TWE's management of the Time Warner and the TWE-Advance/Newhouse
Partnership-owned cable television systems, the pro forma consolidated
condensed statements of operations of Time Warner also reflect certain
reductions in corporate expenses of the acquired entities relating to
the implementation or expected implementation of Time Warner's formal
plan to close certain corporate and regional facilities and to
terminate related personnel as a direct result of the integration of
the acquired operations into Time Warner's and TWE's operating
structure. Implementation of such plans with respect to Summit and
KBLCOM is substantially complete and, with respect to CVI and the
Gerry Companies, is expected to be substantially completed upon or
immediately after the consummation of the transaction. Time Warner and
TWE expect to realize certain additional cost reductions as a result
of other cost-saving initiatives; however, such additional cost
savings have not been reflected in the pro forma consolidated
condensed statements of operations of Time Warner due to the
preliminary nature of these initiatives at this time.
The New Credit Agreement permits borrowings in an aggregate
amount of up to $8.3 billion. Borrowings are limited to $4 billion in
the case of TWI Cable, $5 billion in the case of the
TWE-Advance/Newhouse Partnership and $8.3 billion in the case of TWE,
subject in each case to certain limitations and adjustments. Such
borrowings will bear interest at specific rates for each of the three
borrowers, generally equal to LIBOR plus a margin initially ranging
from 50 to 87.5 basis points based on the credit rating or financial
leverage of the applicable borrower.
Pro forma adjustments for the 1995 Debt Refinancings reflect
aggregate proceeds received of approximately $5.541 billion,
consisting of (1) borrowings of $5.178 billion in the aggregate under
the New Credit Agreement and (2) $363 million of net proceeds to be
raised from the issuance of the PERCS (4% yield). Such proceeds,
together with proceeds received from the issuance of $500 million of
7.75% Notes in June 1995 and approximately $200 million of available
cash and equivalents, are expected to be used to repay or redeem
$2.518 billion of indebtedness to be assumed in the Acquisitions, plus
redemption premiums and interest thereon of $35 million; to repay
$2.575 billion of indebtedness outstanding under the existing TWE bank
credit agreement at June 30, 1995; to redeem $1 billion principal
amount of the 8.75% Convertible Debentures, plus redemption premiums
and accrued interest thereon of $63 million and to pay for $50 million
of financing costs. In addition to such $5.541 billion of
refinancings, $262 million is expected to be borrowed under the New
Credit Agreement to refinance additional indebtedness incurred in
connection with the Cable Transactions, of which $193 million relates
to the consummation of the CVI Acquisition and $69 million relates to
the payment of transaction costs and other liabilities. Pro forma
<PAGE>
adjustments also reflect the non-cash redemption of $1.8 billion
principal amount of outstanding Reset Notes (8.7% yield) in exchange
for an equal amount of Exchange Securities at weighted average
interest rates of 7.9% and 7.45%, respectively, in the six months
ended June 30, 1995 and the year ended December 31, 1994. Based on the
average LIBOR rates in effect during the six months ended June 30,
1995 and the year ended December 31, 1994, LIBOR has been assumed to
be 6% and 4.5% per annum, respectively, and accordingly, the pro forma
consolidated condensed statements of operations reflect interest on
borrowings under the New Credit Agreement at estimated rates of (i)
6.875% and 5.375% per annum, respectively, for TWI Cable and (ii) 6.5%
and 5% per annum, respectively, for each of TWE and the
TWE-Advance/Newhouse Partnership. Each 12.5 basis point increase in
the pro forma interest rate applicable to the aggregate $5.440 billion
of assumed borrowings under the New Credit Agreement would have the
approximate effect of increasing Time Warner's annual interest expense
and net loss by $3 million and $4 million, respectively, and, in the
case of borrowings by TWE and the TWE-Advance/Newhouse Partnership
only, of increasing TWE's annual interest expense and decreasing its
net income by $3 million.
The New Credit Agreement contains certain covenants for each
borrower relating to, among other things, additional indebtedness;
liens on assets; cash flow coverage and leverage ratios; and loans,
advances, distributions and other cash payments or transfers of assets
from the borrowers to their respective partners or affiliates.
The Asset Sale Transactions reflect the disposition by TWE on
June 23, 1995 of 51% of its interest in Six Flags, the payment by Six
Flags of certain intercompany indebtedness and licensing fees to TWE
in connection therewith, and the sale and planned sale of certain
unclustered cable television systems for aggregate gross proceeds of
approximately $1.11 billion. TWE has deconsolidated the assets and
liabilities of Six Flags and will account for its remaining 49%
interest in Six Flags under the equity method of accounting. As a
result of these transactions, TWE expects a cumulative debt reduction
of approximately $1 billion, after the payment of related taxes and
fees and the deconsolidation of approximately $128 million of
third-party, zero-coupon indebtedness of Six Flags due in 1999. The
deconsolidation of such indebtedness is reflected in TWE's historical
balance sheet as of June 30, 1995, and the remaining debt reduction is
expected to occur in the second half of 1995. TWE expects to realize
aggregate income of approximately $325 million as a result of the
Asset Sale Transactions, of which $140 million has been deferred by
TWE principally as a result of its guarantee of such debt of Six
Flags. Income to be realized on the Asset Sale Transactions that have
not closed as of June 30, 1995 has not been reflected in the pro forma
consolidated condensed statements of operations of the Entertainment
Group included herein.
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1995
(millions, unaudited)
<CAPTION>
Time
Warner KBLCOM CVI 1995 Debt TWE Pro
Historical Acquisition(a) Acquisition(b) Refinancings(c) Transactions(d) Forma
---------- -------------- ------------- --------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
A S S E T S
Cash and equivalents $ 597 $ -- $ 13 $ (700) $ 237 $ 147
Other current assets 2,570 35 23 -- -- 2,628
------- -------- ------- ------- ------- --------
Total current assets 3,167 35 36 (700) 237 2,775
Investments in and amounts due to
and from Entertainment Group 5,471 -- -- (24) (107) 5,340
Other investments 1,487 821 20 113 -- 2,441
Property, plant and equipment 796 298 385 -- -- 1,479
Goodwill 4,837 643 846 -- -- 6,326
Cable television franchises 405 1,462 2,403 -- -- 4,270
Other assets 1,625 5 32 22 -- 1,684
-------- -------- -------- -------- ------- --------
Total assets $ 17,788 $ 3,264 $ 3,722 $ (589) $ 130 $ 24,315
======== ======== ======== ======== ======= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities $ 2,945 $ 58 $ 130 $ (47) $ 117 $ 3,203
Long-term debt 9,593 1,111 1,966 (876) -- 11,794
Deferred income taxes 2,696 952 870 -- (64) 4,454
Other long-term liabilities 1,075 -- 3 -- -- 1,078
Company obligated mandatorily
redeemable preferred securities
of subsidiary (1) -- -- -- 374 -- 374
Shareholders' equity:
Preferred stock 4 11 7 -- -- 22
Common stock 384 1 2 -- -- 387
Paid-in capital 3,010 1,131 744 -- -- 4,885
Unrealized gains on certain
marketable securities 134 -- -- -- -- 134
Accumulated deficit (2,053) -- -- (40) 77 (2,016)
-------- -------- -------- -------- ------ --------
Total shareholders' equity 1,479 1,143 753 (40) 77 3,412
-------- -------- -------- -------- ------ --------
Total liabilities and shareholders'
equity $ 17,788 $ 3,264 $ 3,722 $ (589) $ 130 $ 24,315
======== ======== ======== ======== ====== ========
--------
(1) The sole assets of the subsidiary that is the obligor on the preferred
securities are $374 million principal amount of subordinated notes of Time
Warner due December 23, 1997.
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(millions, unaudited)
<CAPTION>
Time
Warner Summit KBLCOM CVI 1995 Debt TWE Pro
Historical Acquisition(e) Acquisition(f) Acquisition(g) Refinancings(h) Transactions(i) Forma
---------- -------------- -------------- -------------- --------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 3,724 $ 22 $ 139 $ 253 $ -- $ -- $ 4,138
Cost of revenues* 2,122 15 104 192 -- -- 2,433
Selling, general and
administrative* 1,280 7 49 51 -- -- 1,387
-------- -------- ------- ------- ------- ------ -------
Operating expenses 3,402 22 153 243 -- -- 3,820
-------- -------- ------- ------- ------- ------ -------
Business segment operating
income (loss) 322 -- (14) 10 -- -- 318
Equity in pretax income
of Entertainment Group 106 -- -- -- 12 12 130
Interest and other, net (356) (5) (54) (79) 35 -- (459)
Corporate expenses (39) -- -- -- -- -- (39)
-------- -------- ------- ------- ------- ------ -------
Income (loss) before
income taxes 33 (5) (68) (69) 47 12 (50)
Income tax (provision)
benefit (88) 1 25 22 (19) (4) (63)
-------- -------- ------- ------- ------- ------ -------
Net income (loss) (55) (4) (43) (47) 28 8 (113)
Preferred dividend
requirements (8) (4) (21) (12) -- -- (45)
-------- -------- ------- ------- ------- ------ -------
Net income (loss) applicable
to common shares $ (63) $ (8) $ (64) $ (59) $ 28 $ 8 $ (158)
======== ======== ======= ======= ======= ====== =======
Net income (loss) per
common share $ (.17) $ (.02) $ (.16) $ (.15) $ .07 $ .02 $ (.41)
======== ======== ======= ======= ======= ====== =======
Average common shares 380.5 1.0 1.0 2.5 -- $ -- 385.0
======== ======== ======= ======= ======= ====== =======
--------------
* Includes depreciation and
amortization expense of: $ 231 $ 11 $ 86 $ 137 $ -- $ -- $ 465
======== ======== ======= ======= ======= ====== =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(millions, unaudited)
<CAPTION>
Time
Warner Summit KBLCOM CVI 1995 Debt TWE Pro
Historical Acquisition(e) Acquisition(f) Acquisition(g) Refinancings(h) Transactions(i) Forma
---------- -------------- -------------- -------------- --------------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 7,396 $ 63 $ 265 $ 493 $ -- $ -- $ 8,217
Cost of revenues* 4,307 47 197 428 -- -- 4,979
Selling, general and
administrative* 2,376 13 98 103 -- -- 2,590
------- ------- ------- ------- ------ ------- -------
Operating expenses 6,683 60 295 531 -- -- 7,569
------- ------- ------- ------- ------ ------- -------
Business segment operating
income (loss) 713 3 (30) (38) -- -- 648
Equity in pretax income of
Entertainment Group 176 -- -- -- 23 9 208
Interest and other, net (724) (15) (100) (147) 84 -- (902)
Corporate expenses (76) -- -- -- -- -- (76)
------- ------- ------- ------- ------ ------- -------
Income (loss) before
income taxes 89 (12) (130) (185) 107 9 (122)
Income tax (provision)
benefit (180) 3 53 46 (44) (1) (123)
------- ------- ------- ------- ------ ------- -------
Net income (loss) (91) (9) (77) (139) 63 8 (245)
Preferred dividend
requirements (13) (12) (41) (24) -- -- (90)
------- ------- ------- ------- ------ ------- -------
Net income (loss) applicable to
common shares $ (104) $ (21) $ (118) $ (163) $ 63 $ 8 $ (335)
======= ======= ======= ======= ====== ======= =======
Net income (loss) per
common share $ (.27) $ (.06) $ (.31) $ (.42) $ .16 $ .03 $ (.87)
======= ======= ======= ======= ====== ======= =======
Average common shares 378.9 1.6 1.0 2.5 -- -- 384.0
======= ======= ======= ======= ====== ======= =======
------------
* Includes depreciation and
amortization expense of: $ 437 $ 32 $ 170 $ 277 $ -- $ -- $ 916
======= ======= ======= ======= ====== ======= =======
See accompanying notes.
</TABLE>
<PAGE>
TIME WARNER INC.
NOTES TO THE TIME WARNER PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(a) Reflects the historical assets and liabilities of KBLCOM as of
June 30, 1995, including a 50% interest in Paragon not previously
owned by TWE and $1.091 billion of indebtedness and accrued
interest thereon that was assumed in the acquisition, as well as
certain pro forma adjustments directly related to the KBLCOM
Acquisition. The pro forma adjustments reflect (1) the issuance
by Time Warner of 1 million shares of its common stock and 11
million shares of Series D preferred stock, valued for pro forma
purposes at an aggregate amount of $1.143 billion, (2) the
exclusion of approximately $367 million of net indebtedness and
other liabilities of KBLCOM that were not assumed by Time Warner
and the exclusion of $500 million of pre-existing goodwill, (3)
the incurrence of $6 million of additional indebtedness for the
payment of transaction costs and other related liabilities, (4)
the allocation of the excess of the purchase price over the book
value of the net assets acquired of $1.569 billion to the
investment in Paragon in the amount of $628 million, to cable
television franchises in the amount of $955 million and to debt
in the amount of $14 million, based on the estimated fair values
of such assets and liabilities, (5) an increase of $643 million
in deferred income tax liabilities and goodwill, resulting from
the fact that the tax basis of the acquired assets was not
adjusted as a result of the KBLCOM Acquisition and (6) the
elimination of KBLCOM's historical stockholders' equity.
(b) Reflects the historical assets and liabilities of CVI and the
Gerry Companies as of June 30, 1995, including $1.706 billion of
indebtedness that will be assumed in the acquisition, as well as
certain pro forma adjustments directly related to the CVI
Acquisition. The pro forma adjustments reflect (1) the issuance
by Time Warner of 2.5 million shares of its common stock, 3.25
million shares of Series E preferred stock and 3.25 million
shares of Series F preferred stock, valued for pro forma purposes
at an aggregate amount of $753 million, (2) the exclusion of
approximately $298 million of net assets of CVI and the Gerry
Companies that will not be assumed by Time Warner, of which $221
million represents pre-existing goodwill, (3) the incurrence of
$244 million of additional indebtedness, consisting of $193
million to consummate the CVI Acquisition and $51 million to pay
for transaction costs and other related liabilities, (4) the
allocation of the excess of the purchase price over the book
value of the net assets acquired of $2.064 billion to cable
television franchises in the amount of $2.08 billion and to debt
in the amount of $16 million, based on the estimated fair value
of such assets and liabilities, (5) an increase of $846 million
in deferred income tax liabilities and goodwill, resulting from
the fact that the tax basis of the acquired assets will not be
adjusted as a result of the CVI Acquisition and (6) the
elimination of the historical stockholders' equity of CVI and the
Gerry Companies.
(c) Pro forma adjustments to record the 1995 Debt Refinancings as of
June 30, 1995 reflect (1) $2.451 billion of borrowings by TWI
Cable under the New Credit Agreement, the proceeds of which were
or will be used (i) to repay or redeem $2.292 billion of
indebtedness assumed or incurred in the KBLCOM and CVI
Acquisitions, plus redemption premiums and interest thereon of
$35 million, (ii) to repay on behalf of Paragon $113 million of
its aggregate $226 million of indebtedness, the other half of
which was repaid by TWE, and (iii) to pay for an allocable $11
million of deferred financing costs in connection with the New
Credit Agreement, (2)
<PAGE>
the partial redemption of $1 billion principal amount of 8.75%
Convertible Debentures for an aggregate redemption price of
$1.063 billion, including redemption premiums and accrued
interest thereon, using (i) approximately $500 million of
proceeds raised from the issuance of the 7.75% Notes in June
1995, (ii) $363 million of proceeds to be raised from the
issuance of the PERCS, net of $11 million of deferred financing
costs and (iii) approximately $200 million of available cash and
equivalents, (3) the non-cash redemption of the $1.8 billion of
Reset Notes in exchange for an equal amount of Exchange
Securities, (4) a $24 million reduction in Time Warner's
investment in and amounts due to and from the Entertainment Group
and a $40 million reduction in shareholders' equity to reflect
the one-time write-off by TWE of $24 million of deferred
financing costs with respect to the existing TWE bank credit
agreement and the $44 million of redemption premiums to be paid
by Time Warner in connection with the partial redemption of the
8.75% Convertible Debentures, net of $28 million of related tax
benefits and (5) a $19 million decrease in current liabilities
due to the accrued interest to be paid by Time Warner in
connection with such redemption.
(d) Pro forma adjustments reflect the effect on Time Warner's
financial position from TWE's Asset Sale Transactions as more
fully described in the notes to the Entertainment Group pro forma
consolidated condensed financial statements contained elsewhere
herein. The effect on each of Time Warner's and the Entertainment
Group's financial position from the deconsolidation of Six Flags
and the receipt of $844 million in proceeds in connection with
the Six Flags Transaction is already reflected in each company's
historical balance sheet as of June 30, 1995. Pro forma
adjustments to record the Asset Sale Transactions as of June 30,
1995 reflect (1) an increase in Time Warner's investment in and
amounts due to and from the Entertainment Group and shareholders'
equity of approximately $130 million with respect to the
aggregate income to be recorded by TWE on the sale of certain
unclustered cable systems which have not closed as of June 30,
1995, (2) a decrease in shareholders' equity of $53 million with
respect to income taxes provided by Time Warner on such income,
(3) a decrease in Time Warner's investment in and amounts due to
and from the Entertainment Group and an increase in cash of $237
million with respect to the receipt from TWE of tax-related
distributions to reimburse Time Warner for the payment of income
taxes on its allocable share of the taxable income arising from
the Asset Sale Transactions in accordance with the terms of the
TWE Partnership Agreement and (4) an increase in current
liabilities of $117 million with respect to the
previously-unrecorded, related current income tax payable due as
a result of the transactions, of which $64 million has been
reclassified from Time Warner's previously-provided deferred
income tax liability.
TWE's consolidation of Paragon, as more fully described in the
notes to the Entertainment Group pro forma consolidated condensed
financial statements contained elsewhere herein, has no pro forma
effect on the underlying capital of TWE and, accordingly, has no
effect on the pro forma financial position of Time Warner.
(e) Reflects the historical operating results of Summit for the
four-month pre-acquisition period ending May 2, 1995 and the year
ended December 31, 1994, as well as certain pro forma adjustments
directly related to the Summit Acquisition. The pro forma
adjustments reflect (1) the exclusion of an aggregate $15 million
of net income in each period relating to (i) Summit's
broadcasting operations that were sold by Summit prior to the
closing of the Summit Acquisition and (ii) reductions in Summit's
corporate expenses principally relating to the implementation of
Time Warner's formal plan to close Summit's corporate facilities
and to terminate related
<PAGE>
personnel as a direct result of the integration of Summit's
operations into Time Warner's and TWE's operating structure, (2)
an increase of $8 million and $24 million, respectively, in cost
of revenues with respect to the amortization of the excess cost
to acquire Summit that has been allocated to (i) cable television
franchises in the amount of $408 million and amortized on a
straight-line basis over a twenty-year period and (ii) goodwill
in the amount of $159 million and amortized on a straight-line
basis over a forty-year period, (3) an increase of $1 million and
$2 million, respectively, in selling, general and administrative
expenses with respect to payments to be made to TWE for its
management of Summit's cable television systems, (4) a decrease
of $3 million and $9 million, respectively, in income tax expense
as a result of income tax benefits provided at a 41% tax rate on
the additional amortization expense and management fees to be
paid to TWE and (5) an increase of $4 million and $12 million,
respectively, in preferred dividend requirements of the Series C
Preferred Stock issued in the Summit Acquisition.
(f) Reflects the historical operating results of KBLCOM for the six
months ended June 30, 1995 and the year ended December 31, 1994,
as well as certain pro forma adjustments directly related to the
KBLCOM Acquisition. The pro forma adjustments reflect (1) the
exclusion of an aggregate $19 million and $17 million,
respectively, of net losses relating to (i) interest costs on the
portion of KBLCOM's indebtedness that has not been assumed by
Time Warner, (ii) reductions in KBLCOM's corporate expenses
principally relating to the implementation of Time Warner's
formal plan to close KBLCOM's corporate and regional facilities
and to terminate related personnel as a direct result of the
integration of KBLCOM's operations into Time Warner's and TWE's
operating structure and (iii) for the year ended December 31,
1994 only, the pro forma effect of certain KBLCOM acquisitions
which occurred during the year, (2) an increase of $41 million
and $75 million, respectively, in cost of revenues consisting of
a $7 million and $20 million, respectively, reduction of KBLCOM's
historical amortization of pre-existing goodwill and a $48
million and $95 million, respectively, increase in amortization
with respect to the excess cost to acquire KBLCOM that has been
allocated to (i) investments and amortized on a straight-line
basis over a twenty-year period, (ii) cable television franchises
and amortized on a straight-line basis over a twenty-year period
and (iii) goodwill and amortized on a straight-line basis over a
forty-year period, (3) an increase of $4 million and $8 million,
respectively, in selling, general and administrative expenses
with respect to payments to be made to TWE for its management of
certain of KBLCOM's cable television systems, (4) a decrease of
$18 million and $36 million, respectively, in income tax expense
as a result of income tax benefits provided at a 41% tax rate on
the additional amortization expense and management fees to be
paid to TWE and (5) an increase of $21 million and $41 million,
respectively, in preferred dividend requirements of the Series D
Preferred Stock issued in the KBLCOM Acquisition.
(g) Reflects the historical operating results of CVI and the Gerry
Companies for the six months ended June 30, 1995 and the year
ended December 31, 1994, as well as certain pro forma adjustments
directly related to the CVI Acquisition. The pro forma
adjustments reflect (1) the exclusion of $13 million and $21
million, respectively, of net losses with respect to reductions
in the corporate expenses of CVI and the Gerry Companies
principally relating to the expected implementation of Time
Warner's formal plan to close corporate and regional facilities
and to terminate related personnel as a direct result of the
integration of the operations of CVI and the Gerry Companies into
Time Warner's and TWE's operating structure, (2) an increase of
$57 million and $113 million, respectively, in cost of revenues
consisting of a $6 million and $12 million reduction,
<PAGE>
respectively, of CVI's historical amortization of pre-existing
goodwill and a $63 million and $125 million increase,
respectively, in amortization with respect to the excess cost to
acquire CVI and the Gerry Companies that has been allocated to
(i) cable television franchises and amortized on a straight-line
basis over a twenty-year period and (ii) goodwill and amortized
on a straight-line basis over a forty-year period, (3) an
increase of $8 million and $15 million, respectively, in selling,
general and administrative expenses with respect to payments to
be made to TWE for its management of the cable television systems
of CVI and the Gerry Companies, (4) an increase of $8 million and
$13 million, respectively, in interest expense on the $244
million of borrowings under the New Credit Agreement, which will
be used to consummate the CVI Acquisition and to pay for
transaction costs and other related liabilities, (5) a decrease
of $28 million and $54 million, respectively, in income tax
expense as a result of income tax benefits provided at a 41% tax
rate on the additional amortization expense, interest expense and
management fees to be paid to TWE and (6) an increase of $12
million and $24 million, respectively, in preferred dividend
requirements of the Series E Preferred Stock and Series F
Preferred Stock to be issued in the CVI Acquisition.
(h) Pro forma adjustments to record the 1995 Debt Refinancings for
the six months ended June 30, 1995 and the year ended December
31, 1994 reflect interest savings of $47 million and $107
million, respectively, from (1) $5.178 billion of aggregate
borrowings under the New Credit Agreement, which were or are
expected to be used to refinance $5.093 billion of indebtedness
(plus $85 million of related financing costs), (2) the partial
redemption of $1 billion principal amount of 8.75% Convertible
Debentures for an aggregate redemption price of $1.063 billion,
including redemption premiums and accrued interest thereon, using
(i) approximately $500 million of proceeds raised from the
issuance of the 7.75% Notes in June 1995, (ii) $363 million of
net proceeds to be raised from the issuance of the PERCS and
(iii) approximately $200 million of available cash and
equivalents and (3) the non-cash redemption of $1.8 billion
principal amount of outstanding Reset Notes in exchange for an
equal amount of Exchange Securities, as follows (in millions):
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
------------------------ ------------------------
Equity in Equity in
Pretax Pretax
Interest Income of Interest Income of
and Other, Entertainment and Other, Entertainment
Net Group Net Group
---------- ------------- ---------- --------------
Increase (Decrease)
<S> <C> <C> <C> <C>
o Borrowings by TWI Cable, TWE and the
TWE-Advance/Newhouse Partnership in
the amounts of $2.451 billion, $2.713
billion, and $14 million,
respectively, under the New Credit
Agreement, at estimated annual
interest rates of 6.875%, 6.5% and
6.5%, respectively, for the six
months ended June 30, 1995 and
5.375%, 5% and 5%, respectively, for
the year ended December 31, 1994 $ 84 $ 89 $132 $136
o Issuance by Time Warner of $500
million of 7.75% Notes and
approximately 12.1 million PERCS (4%
yield) 27 - 54 -
o Issuance by Time Warner of $1.8
billion of Exchange Securities at
weighted average interest rates of
7.9% and 7.45%, respectively, for the
six months ended June 30, 1995 and
the year ended December 31, 1994 71 - 134 -
o Repayment by TWE of $2.575 billion of
outstanding indebtedness under the
existing TWE bank credit agreement - (84) - (124)
o Repayment by TWI Cable of $1.206
billion of indebtedness assumed in
the CVI Acquisition (45) - (83) -
o Repayment by TWI Cable of $1.086
billion of indebtedness assumed in
the KBLCOM Acquisition (57) - (99) -
o Repayment of $226 million of
Paragon's indebtedness, funded
equally by Time Warner and TWE - (9) - (18)
o Redemption of $1 billion principal
amount of 8.75% Convertible
Debentures (44) - (88) -
o Redemption of $1.8 billion of Time
Warner's Reset Notes (8.7% yield) (74) - (140) -
o Amortization of $11 million of
deferred financing costs incurred by
Time Warner in connection with
issuance of the PERCS 2 - 4 -
o Amortization of $11 million and $39
million of deferred financing costs
allocated to Time Warner and the
Entertainment Group, respectively, in
connection with obtaining the New
Credit Agreement on a straight-line
basis for a five-year period 1 4 2 8
o Reduction of historical amortization
of deferred financing costs recorded
with respect to the existing TWE
credit agreement - (12) - (25)
---- ---- ---- ----
Net decrease in interest costs $(35) $(12) $(84) $(23)
==== ==== ==== ====
</TABLE>
<PAGE>
Income taxes of $19 million and $44 million, respectively, have been
provided at a 41% tax rate on the aggregate net reduction in interest
costs.
(i) Pro forma adjustments for the six months ended June 30, 1995 and
the year ended December 31, 1994 to record $12 million and $9
million, respectively, of increased income from Time Warner's
equity in the pretax income of the Entertainment Group reflect the
aggregate effect on TWE's operating results from (1) the TWE-A/N
Transaction, (2) the fees to be earned by TWE with respect to its
management of certain of Time Warner's cable television systems
and (3) the Asset Sale Transactions, as more fully described in
the notes to the Entertainment Group pro forma consolidated
condensed financial statements contained elsewhere herein.
TWE's consolidation of Paragon, as more fully described in the
notes to the Entertainment Group pro forma consolidated condensed
financial statements contained elsewhere herein, has no pro forma
effect on the net income of TWE and, accordingly, the
consolidation of Paragon has no effect on the pro forma operating
results of Time Warner.
Income taxes of $4 million and $1 million, respectively, have been
provided at a 41% tax rate on the aggregate increase in income
from Time Warner's equity in the pretax income of the
Entertainment Group, adjusted for certain temporary differences.
<PAGE>
<TABLE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
June 30, 1995
(millions, unaudited)
<CAPTION>
Entertainment Consolidated
Group of 1995 Debt Asset Sale Pro
Historical Paragon(a) Refinancings(b) Transactions(c) Forma
------------- ------------ --------------- --------------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and equivalents $ 2,263 $ 25 $ -- $ (909) $ 1,379
Other current assets 2,510 16 -- -- 2,526
------- ------ ------ ------- -------
Total current assets 4,773 41 -- (909) 3,905
Noncurrent inventories 1,656 -- -- -- 1,656
Loan receivable from Time Warner 400 -- -- -- 400
Investments 816 (354) -- -- 462
Property, plant and equipment 4,141 412 -- (21) 4,532
Goodwill 4,095 88 -- -- 4,183
Cable television franchises 3,123 292 -- (49) 3,366
Other assets 616 2 15 -- 633
------- ------ ------ ------- -------
Total assets $19,620 $ 481 $ 15 $ (979) $19,137
======= ====== ====== ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Total current liabilities $ 3,275 $ 79 $ -- $ (120) $ 3,234
Long-term debt 7,037 226 (74) (872) 6,317
Other long-term liabilities 911 -- -- -- 911
Minority interests 317 176 113 -- 606
Time Warner General Partners'
senior capital 1,730 -- -- -- 1,730
Partners' capital 6,350 -- (24) 13 6,339
------- ------ ------ ------- -------
Total liabilities and
partners' capital $19,620 $ 481 $ 15 $ (979) $19,137
======= ====== ====== ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Six Months Ended June 30, 1995
(millions, unaudited)
<CAPTION>
Entertainment Consolidation TWI-TWE
Group TWE-A/N of 1995 Debt Management Asset Sale Pro
Historical Transaction(d) Paragon(e) Refinancings(f) Fees(g) Transactions(h) Forma
------------- -------------- ------------- --------------- ---------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 4,508 $ 137 $ 179 $ -- $ 13 $ (249) $ 4,588
Cost of revenues* 3,078 51 139 -- -- (197) 3,071
Selling, general and
administrative* 955 56 31 -- -- (13) 1,029
------- ------- ------- ------- ------- ------- -------
Operating expenses 4,033 107 170 -- -- (210) 4,100
Business segment
operating income (loss) 475 30 9 -- 13 (39) 488
Interest and other, net (339) (27) (9) 12 -- 35 (328)
Corporate expenses (30) -- -- -- -- -- (30)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes 106 3 -- 12 13 (4) 130
Income tax (provision)
benefit (36) -- -- -- -- 3 (33)
------- ------- ------- ------- ------- ------- -------
Net income (loss) $ 70 $ 3 $ -- $ 12 $ 13 $ (1) $ 97
======= ======= ======= ======= ======= ======= =======
-------------
* Includes depreciation and
and amortization
expense of: $ 513 $ 26 $ 36 $ -- $ -- $ (34) $ 541
======= ======= ======= ======= ======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(millions, unaudited)
<CAPTION>
Consolidation TWI-TWE
TWE-A/N of 1995 Debt Management Asset Sale Pro
Historical Transaction(d) Paragon(e) Refinancings(f) Fees(g) Transactions(h) Forma
---------- -------------- ------------- --------------- ---------- --------------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $8,509 $ 527 $ 348 $ -- $ 25 $ (619) $8,790
Cost of revenues* 6,003 209 270 -- -- (511) 5,971
Selling, general and
administrative* 1,654 206 60 -- -- (29) 1,891
------ ------ ------ ------ ------ ------ ------
Operating expenses 7,657 415 330 -- -- (540) 7,862
Business segment
operating income (loss) 852 112 18 -- 25 (79) 928
Interest and other, net (616) (99) (18) 23 -- 50 (660)
Corporate expenses (60) -- -- -- -- -- (60)
------ ------ ------ ------ ------ ------ ------
Income (loss) before
income taxes 176 13 -- 23 25 (29) 208
Income tax (provision)
benefit (40) -- -- -- -- 6 (34)
------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 136 $ 13 $ -- $ 23 $ 25 $ (23) $ 174
====== ====== ====== ====== ====== ====== ======
---------------
* Includes depreciation
and amortization
expense of: $ 959 $ 104 $ 63 $ -- $ -- $ (86) $1,040
====== ====== ====== ====== ====== ====== ======
See accompanying notes.
</TABLE>
<PAGE>
TIME WARNER INC.
NOTES TO THE ENTERTAINMENT GROUP PRO FORMA CONSOLIDATED CONDENSED
FINANCIAL STATEMENTS
(a) Pro forma adjustments reflect the consolidation of Paragon's
financial position as of June 30, 1995 as a result of TWE's
control over the management of such entity. Minority interest of
$176 million has been recorded in the pro forma consolidated
condensed balance sheet of the Entertainment Group reflecting Time
Warner's interest in the joint venture.
(b) Pro forma adjustments to record the 1995 Debt Refinancings as of
June 30, 1995 reflect (1) a net decrease in debt of $74 million,
consisting of (i) $2.727 billion of aggregate borrowings by TWE
and the TWE-Advance/Newhouse Partnership under the New Credit
Agreement, (ii) the repayment of $2.575 billion of outstanding
indebtedness under the existing TWE bank credit agreement at June
30, 1995 and (iii) the repayment of $226 million of Paragon's
indebtedness, (2) an increase of $113 million in Time Warner's
minority interest in Paragon, representing Time Warner's capital
contribution to Paragon in the form of the repayment of its
allocable share of Paragon's indebtedness, (3) the payment of an
allocable $39 million of deferred financing costs in connection
with the New Credit Agreement and (4) a reduction in TWE's
partners' capital by $24 million to reflect the one-time write-off
of deferred financing costs with respect to the existing TWE bank
credit agreement.
(c) Pro forma adjustments to record the Asset Sale Transactions as of
June 30, 1995 reflect (1) the receipt by TWE of approximately $200
million of aggregate gross proceeds with respect to the sale by
TWE of certain unclustered cable television systems which have not
closed as of June 30, 1995, (2) a reduction in debt of $872
million, resulting from the use of the aggregate net proceeds
received from the Asset Sale Transactions, after related taxes and
fees, to repay indebtedness under the New Credit Agreement, (3) a
reduction in net assets with respect to the cable television
systems to be sold subsequent to June 30, 1995 and (4) the payment
of $237 million in tax-related distributions that will reimburse
Time Warner for the payment of income taxes on its allocable share
of the taxable income arising from these transactions in
accordance with the terms of the TWE partnership agreement, of
which $120 million had been previously accrued for and reflected
in the historical balance sheet of the Entertainment Group as of
June 30, 1995. The effects from the deconsolidation of Six Flags,
the receipt of $844 million in proceeds in connection with the Six
Flags Transaction and the sale by TWE of certain unclustered cable
systems during the second quarter of 1995 are already reflected in
the historical balance sheet of the Entertainment Group as of June
30, 1995.
(d) Reflects the historical operating results of Advance/Newhouse for
the three months ended March 31, 1995 and the year ended December
31, 1994 (and for the three months ended January 31, 1995 and for
the twelve months ended October 31, 1994 with respect to certain
contributed businesses which have different fiscal years), as well
as certain pro forma adjustments directly related thereto. The pro
forma adjustments reflect (1) an increase of $1 million and $2
million, respectively, in cost of revenues with respect to TWE's
<PAGE>
amortization of transaction costs on a straight-line basis over a
three-year period and (2) an increase of $27 million and $99
million, respectively, in interest and other, net, representing
Advance/Newhouse's minority interest in the net income of the
TWE-Advance/Newhouse Partnership, including their one-third share
of $45 million of annual management fees to be paid by the
partnership to TWE.
(e) Pro forma adjustments reflect the consolidation of Paragon's
operating results for the six months ended June 30, 1995 and the
year ended December 31, 1994, offset by Time Warner's minority
share of the net income of Paragon in the amount of $24 million
and $34 million, respectively.
(f) Pro forma adjustments to record the 1995 Debt Refinancings for the
six months ended June 30, 1995 and the year ended December 31,
1994 reflect lower interest costs of $12 million and $23 million,
respectively, from (i) $2.727 billion of aggregate borrowings
under the New Credit Agreement, which were used to refinance
$2.688 billion of indebtedness (plus $39 million of related
financing costs) and (ii) the repayment by Time Warner of $113
million of Paragon's indebtedness, as follows (in millions):
<PAGE>
Six Months Ended Year Ended
June 30, 1995 December 31, 1994
---------------- -----------------
Increase(Decrease)
o Borrowings by TWE and the
TWE-Advance/Newhouse Partnership
in the amounts of $2.713 billion
and $14 million, respectively,
under the New Credit Agreement,
at estimated annual interest
rates for each borrower of 6.5%
for the six months ended June
30, 1995 and 5% for the year
ended December 31, 1994 $ 89 $136
o Repayment by TWE of $2.575
billion of indebtedness under
the existing TWE bank credit
agreement (84) (124)
o Repayment of $226 million of
Paragon's indebtedness, funded
equally by TWE and Time Warner (9) (18)
o Amortization of an allocable $39
million of deferred financing
costs in connection with
obtaining the New Credit
Agreement on a straight-line
basis for a five-year period 4 8
o Reduction of historical
amortization of deferred
financing costs recorded with
respect to the existing TWE
credit agreement (12) (25)
--- ---
Net decrease in interest costs $(12) $(23)
=== ===
(g) Pro forma adjustments for the six months ended June 30, 1995 and
the year ended December 31, 1994 reflect fees to be received from
Time Warner in the amount of $13 million and $25 million,
respectively, with respect to TWE's management of certain of Time
Warner's cable television systems.
(h) Pro forma adjustments to record decreases of $1 million and $23
million in net income, respectively, from the Asset Sale
Transactions for the six months ended June 30, 1995 and the year
ended December 31, 1994 reflect (1) the deconsolidation of the
operating results of Six Flags, (2) the elimination of the
operating results of the cable television systems sold or to be
sold and (3) a decrease in interest expense, representing interest
savings
<PAGE>
from the repayment by TWE of indebtedness under the New Credit
Agreement using the aggregate net proceeds received in these
transactions. TWE will realize aggregate income of approximately
$325 million on these transactions, of which $140 million has been
deferred by TWE principally as a result of its guarantee of
third-party, zero-coupon indebtedness of Six Flags due in 1999.
Income to be realized on the Asset Sale Transactions that have not
closed as of June 30, 1995 has not been reflected in the pro forma
consolidated condensed statements of operations of the
Entertainment Group included herein.
<PAGE>
Item 7. Financial Statements and Exhibits.
-------------------------------------------
(a) Financial statements of businesses acquired:
(i) Unaudited Consolidated Financial Statements of
Cablevision Industries Corporation and Subsidiaries as of
June 30, 1995 and for the six months ended June 30, 1995;
(ii) Unaudited Combined Financial Statements of Cablevision
Industries Limited Partnership and Combined Entities as of
June 30, 1995 and for the six months ended June 30, 1995;
(iii) Unaudited Consolidated Financial Statements of KBLCOM
Incorporated as of June 30, 1995 and for the six months
ended June 30, 1995;
(b) Pro forma Consolidated Condensed Financial Statements:
(i) Time Warner Inc.:
(A) Pro Forma Consolidated Condensed Balance Sheet as
of June 30, 1995;
(B) Pro Forma Consolidated Condensed Statements of
Operations for the six months ended June 30, 1995 and the
year ended December 31, 1994; and
(C) Notes to Pro Forma Consolidated Condensed Financial
Statements.
(ii) Entertainment Group:
(A) Pro Forma Consolidated Condensed Balance Sheet as
of June 30, 1995;
(B) Pro Forma Consolidated Condensed Statements of
Operations for the six months ended June 30, 1995 and the
year ended December 31, 1994; and
(C) Notes to Pro Forma Consolidated Condensed Financial
Statements.
<PAGE>
(c) Exhibits:
(i) Exhibit 4(a): Form of Floating Rate Note Due August 15,
2000 of Time Warner Inc. (incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s Registration Statement on
Form S-8 (File No. 33-61497) filed with the Securities and
Exchange Commission on August 1, 1995).
(ii) Exhibit 4(b): Form of 7.975% Note Due August 15, 2004
of Time Warner Inc. (incorporated by reference from Exhibit
4.1 to Time Warner Inc.'s Registration Statement on Form S-8
(File No. 33-61497) filed with the Securities and Exchange
Commission on August 1, 1995).
(iii) Exhibit 4(c): Form of 8.11% Debenture Due August 15,
2006 of Time Warner Inc. (incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s Registration Statement on
Form S-8 (File No. 33-61497) filed with the Securities and
Exchange Commission on August 1, 1995).
(iv) Exhibit 4(d): Form of 8.18% Debenture Due August 15,
2007 of Time Warner Inc. (incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s Registration Statement on
Form S-8 (File No. 33-61497) filed with the Securities and
Exchange Commission on August 1, 1995).
(v) Exhibit 23(a): Consent of Ernst & Young LLP, Independent
Auditors.
(vi) Exhibit 99(a): Unaudited Consolidated Financial
Statements of Cablevision Industries Corporation and
Subsidiaries as of June 30, 1995 and for the six months
ended June 30, 1995 (incorporated by reference from pages 2
to 11 of the Quarterly Report on Form 10-Q for the quarterly
period ended June 30, 1995 of Cablevision Industries
Corporation).
(vii) Exhibit 99(b): Unaudited Combined Financial Statements
of Cablevision Industries Limited Partnership and Combined
Entities as of June 30, 1995 and for the six months ended
June 30, 1995.
(viii) Exhibit 99(c): Unaudited Consolidated Financial
Statements of KBLCOM Incorporated as of June 30, 1995 and
for the six months ended June 30, 1995.
(ix) Exhibit 99(d): Report of Ernst & Young LLP regarding
financial statements of Vision Cable Division of Vision Cable
Communications, Inc. and Subsidiaries.
(x) Exhibit 99(e): Report of Ernst & Young LLP regarding
financial statements of Newhouse Broadcasting Cable Division
of Newhouse Broadcasting Corporation and Subsidiaries.
(xi) Exhibit 99(f): Notice of Redemption of Redeemable Reset
Notes of Time Warner, Inc. (incoroporated by reference from
Exhbiit T3E-1 to Amendment No. 1 to Time Warner Inc.'s
Application for Qualification of Indenture on Form T-3 (File
No. 22-22213) filed with the Securities and Exchange
Commission on August 1, 1995).
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of
New York, State of New York, on August 14, 1995.
TIME WARNER INC.,
By: /s/ Richard J. Bressler
----------------------------------
Name: Richard J. Bressler
Title: Senior Vice President
and Chief Financial Officer
<PAGE>
EXHIBIT INDEX
Sequential
Exhibit No. Description of Exhibit Page Number
----------- ---------------------- ------------
4(a) Form of Floating Rate Note Due *
August 15, 2000 of Time Warner Inc.
(incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s
Registration Statement on Form S-8
(File No. 33-61497) filed with the
Securities and Exchange Commission
on August 1, 1995).
4(b) Form of 7.975% Note Due August 15, *
2004 of Time Warner Inc.
(incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s
Registration Statement on Form S-8
(File No. 33-61497) filed with the
Securities and Exchange Commission
on August 1, 1995).
4(c) Form of 8.11% Debenture Due August *
15, 2006 of Time Warner Inc.
(incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s
Registration Statement on Form S-8
(File No. 33-61497) filed with the
Securities and Exchange Commission
on August 1, 1995).
4(d) Form of 8.18% Debenture Due August *
15, 2007 of Time Warner Inc.
(incorporated by reference from
Exhibit 4.1 to Time Warner Inc.'s
Registration Statement on Form S-8
(File No. 33-61497) filed with the
Securities and Exchange Commission
on August 1, 1995).
23(a) Consent of Ernst & Young LLP,
Independent Auditors.
99(a) Unaudited Consolidated Financial *
Statements of Cablevision Industries
Corporation and Subsidiaries as of
June 30, 1995 and for the six months
ended June 30, 1995 (incorporated by
reference from pages 2 to 11 of the
Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1995
of Cablevision Industries Corporation).
99(b) Unaudited Combined Financial Statements
of Cablevision Industries Limited
Partnership and Combined Entities as of
June 30, 1995 and for the six months
ended June 30, 1995.
<PAGE>
99(c) Unaudited Consolidated Financial
Statements of KBLCOM Incorporated
as of June 30, 1995 and for the
six months ended June 30, 1995.
99(d) Report of Ernst & Young LLP regarding
financial statements of Vision Cable
Division of Vision Cable Communications,
Inc. and Subsidiaries.
99(e) Report of Ernst & Young LLP regarding
financial statements of Newhouse
Broadcasting Cable Division of Newhouse
Broadcasting Corporation and Subsidiaries
99(f) Notice of Redemption of Redeemable Reset *
Notes of Time Warner Inc. (incorporated
by reference from Exhibit T3E-1 to Amendment
No. 1 to Time Warner Inc.'s Application
for Qualification of Indenture on Form T-3
(File No. 22-22213) filed with the Securities
and Exchange Commission on August 1, 1995.
--------------------
* Incorporated by reference.
Exhibit 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our reports dated July 28,
1995, with respect to the financial statements of (i) Newhouse Broadcasting
Cable Division of Newhouse Broadcasting Corporation and Subsidiaries for
each of the three years in the period ended July 31, 1994, and (ii) Vision
Cable Division of Vision Cable Communications, Inc. and Subsidiaries for
each of the three years in the period ended December 31, 1994, appearing in
the Current Report on Form 8-K of Time Warner Inc. dated August 14, 1995,
in each of the following:
1. Post-Effective Amendment No. 2 to Registration Statements No.
33-11031 and No. 2-76753 on Form S-8;
2. Post-Effective Amendment No. 4 on Form S-3 to Registration
Statement No. 2-75960 on Form S-16 and Post-Effective Amendment
No. 1 on Form S-3 to Registration Statement No. 33-58262 on Form
S-3;
3. Registration Statements No. 33-20883 and No. 33-35945 on Form
S-8;
4. Post-Effective Amendment No. 8 to Registration Statements No.
2-62477 and No. 2-67216 on Form S-8;
5. Registration Statements No. 33-37929 and No. 33-47152 on Form
S-8;
6. Post-Effective Amendment No. 2 to Registration Statement No.
33-16507 on Form S-8 and Registration Statement No. 33-48381 on
Form S-8;
7. Post-Effective Amendment No. 1 to Registration Statement No.
33-29247 on Form S-8;
8. Registration Statement No. 33-33076 (the Prospectus constituting
a part thereof also applies to Registration Statements No.
33-29029 and No. 33-29030) on Form S-8;
9. Amendment No. 1 to Registration Statement No. 33-33043 on Form
S-8 and Registration Statement No. 33-51471 on Form S-8;
10. Pre-Effective Amendment No. 1 to Registration Statement No.
33-29031 on Form S-3;
11. Registration Statement No. 33-35317 on Form S-8;
12. Registration Statements No. 33-40859 and No. 33-48382 on Form
S-8;
13. Registration Statement No. 33-47151 on Form S-8;
14. Post-Effective Amendment No. 1 on Form S-8 to Registration
Statement No. 33-47705 on Form S-4;
<PAGE>
15. Registration Statement No. 33-57812 on Form S-3;
16. Registration Statements No. 33-62774 and No. 33-51015 on Form
S-8;
17. Registration Statement No. 33-53213 on Form S-8 and
Post-Effective Amendment No. 1 to Registration Statement No.
33-57667 on Form S-8;
18. Post-Effective Amendment No. 1 to Registration Statement No.
33-50237 on Form S-3;
19. Registration Statement No. 33-61497 on Form S-8;
20. Registration Statement Nos. 33-61523, 33-61523-01, 33-61523-02
and 33-61523-03 on Form S-3;
21. Amendment No. 2 to Registration Statement Nos. 33-60203 and
33-60203-01 on Form S-3;
22. Registration Statement No. 33-61579 on Form S-3.
ERNST & YOUNG LLP
New York, New York
August 14, 1995
Exhibit 99(b)
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended Six Months Ended
June 30, 1995 June 30, 1995
------------------ ----------------
REVENUES $ 22,252 $ 44,563
---------- --------
COSTS AND EXPENSES:
Service costs 7,041 13,909
Selling, general and
administrative expenses 3,734 7,637
---------- --------
Operating cash flow 11,477 23,017
MANAGEMENT FEE EXPENSE 1,112 2,228
---------- --------
Operating income 10,365 20,789
---------- --------
INTEREST EXPENSE:
Bank debt, net 3,908 7,744
Unsecured subordinated
debt and other 110 218
---------- --------
4,018 7,962
DEPRECIATION AND AMORTIZATION 5,708 11,466
GAIN ON SALE OF ASSETS 0 (2,747)
---------- --------
NET INCOME $ 639 $ 4,108
========== ========
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED BALANCE SHEETS
(All dollar amounts in 000's)
June 30, 1995 December 31, 1994
------------- -----------------
(Unaudited)
ASSETS
Cash $ 6,202 $ 1,455
Subscriber receivables 2,793 2,854
Prepaid expenses & other assets 6,977 3,413
Investment in cable television
systems:
Property, plant & equipment,
at cost 182,612 176,915
Less - accumulated depreciation (118,034) (111,476)
--------- ---------
64,578 65,439
Franchising costs 17,960 20,250
Other intangible assets 12,152 13,130
--------- ---------
Total investment in cable
television systems 94,690 98,819
--------- ---------
$ 110,662 $ 106,541
========= =========
LIABILITIES AND STOCKHOLDER'S AND PARTNER'S DEFICIT
LIABILITIES:
Senior bank debt $ 173,420 $ 173,420
Senior subordinate bank debt 52,348 53,690
Senior unsecured subordinated debt -
Series A Notes 782 564
Senior unsecured subordinated debt -
Series B Notes 5,000 5,000
Accounts payable & accrued expenses 13,846 14,288
Subscriber advance payments and deposits 2,321 2,970
Management fee payable 10,793 8,565
--------- ---------
Total liabilities 258,510 258,497
--------- ---------
STOCKHOLDER'S & PARTNERS' DEFICIT
Common stock 3 3
Additional paid-in capital 10,053 10,053
Accumulated deficit (13,291) (15,640)
Partners' deficit (144,613) (146,372)
--------- ---------
Total stockholder's and
partners' deficit (147,848) (151,956)
--------- ---------
$ 110,662 $ 106,541
========= =========
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED STATEMENT OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Six Months Ended
June 30, 1995
----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 4,108
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 11,466
Net increase in subscriber
receivables, prepaid expenses and
other assets, accounts payable and
accrued expenses, subscriber advance
payments and deposits, and
management fee payable (2,366)
-------
Net cash flows from operating activities 13,208
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in property, plant and
equipment (8,944)
Sale of cable television assets 1,682
-------
Net cash flows from investing activities (7,262)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in senior subordinated bank debt (1,342)
Increase in senior unsecured subordinated
debt - Series A Notes 218
Other (75)
-------
Net cash flows from financing activities (1,199)
-------
Net increase in cash 4,747
CASH, beginning of year 1,455
-------
CASH, end of period $ 6,202
=======
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED STATEMENTS OF CHANGES IN STOCKHOLDER'S
AND PARTNERS' DEFICIT
(All dollar amounts in 000's)
(Unaudited)
Accumulated Partners'
Deficit Deficit
----------- -----------
BALANCE, December 31, 1994 $(15,640) $(146,372)
Net income 2,349 1,759
-------- ---------
BALANCE, June 30, 1995 $(13,291) $(144,613)
======== =========
Exhibit 99(c)
KBLCOM INCORPORATED
CONSOLIDATED BALANCE SHEETS,
JUNE 30, 1995 AND DECEMBER 31, 1994 (in Thousands Except Share Amounts)
June 30, 1995 December 31, 1994
------------- -----------------
ASSETS (Unaudited)
Subscriber receivables, net of allowance
for doubtful accounts of $964 and $924
at June 30, 1995 and December 31, 1994,
respectively $ 12,240 $ 12,028
Other receivables, net 9,375 7,152
Prepaid expenses 2,527 3,466
Inventory 10,849 9,952
Property, plant and equipment, net 297,829 276,624
Equity investments:
Paragon 175,642 152,364
Other partnerships 9,725 7,999
Investments in marketable equity securities 7,861 7,861
Cable television franchises and
intangible assets, net 1,007,244 1,029,440
Other deferred costs, net of
accumulated amortization of
$10,199 and $9,853 at June 30,
1995 and December 31, 1994,
respectively 5,246 8,104
Due from parent 42,535 41,615
----------- -----------
TOTAL $ 1,581,073 $ 1,556,605
=========== ===========
LIABILITIES AND STOCKHOLDER'S DEFICIT
LIABILITIES:
Accounts payable $ 29,874 $ 24,309
Accrued liabilities 27,984 31,176
Accrued interest:
Due to third parties 5,318 8,790
Due to parent 127,795 86,363
Prepayments for services and
subscriber deposits 9,600 7,717
Short-term borrowings from parent 200,900 140,300
Senior bank debt 339,000 364,000
Senior notes 54,670 62,480
Senior subordinated notes 70,113 78,100
Notes payable to parent 694,097 694,097
Deferred tax liability 308,971 311,823
----------- -----------
Total liabilities 1,868,322 1,809,155
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S DEFICIT:
Common stock, $1 par; 1,000 shares
authorized, issued and outstanding 1 1
Paid-in capital 388,876 388,876
Accumulated deficit (676,126) (641,427)
----------- -----------
Total stockholder's deficit (287,249) (252,550)
----------- -----------
TOTAL $ 1,581,073 $ 1,556,605
=========== ===========
See notes to consolidated financial statements.
<PAGE>
KBLCOM INCORPORATED
STATEMENTS OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1995 AND 1994 (in Thousands) (UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ ------------------
1995 1994 1995 1994
-------- -------- -------- --------
REVENUES $ 72,335 $ 61,754 $139,440 $122,274
COSTS AND EXPENSES:
Programming 18,421 15,380 35,587 30,495
Selling, general and administrative 26,664 22,360 52,699 47,655
Depreciation and amortization 22,052 20,591 45,423 40,966
-------- -------- -------- --------
Total 67,137 58,331 133,709 119,116
-------- -------- -------- --------
OPERATING INCOME 5,198 3,423 5,731 3,158
-------- -------- -------- --------
OTHER INCOME:
Equity in income of partnerships 7,750 7,790 15,128 15,700
Other, net (1,140) (2,223) (854) (1,873)
-------- -------- -------- --------
Total 6,610 5,567 14,274 13,827
-------- -------- -------- --------
INTEREST EXPENSE:
Third parties 9,327 10,350 19,746 20,976
Parent, net of interest income 25,489 18,382 48,847 34,966
-------- -------- -------- --------
Total 34,816 28,732 68,593 55,942
-------- -------- -------- --------
LOSS BEFORE INCOME TAXES (23,008) (19,742) (48,588) (38,957)
INCOME TAX BENEFIT (5,771) (5,744) (13,889) (11,011)
-------- -------- -------- --------
NET LOSS $(17,237) $(13,998) $(34,699) $(27,946)
======== ======== ======== ========
See notes to consolidated financial statements.
<PAGE>
KBLCOM INCORPORATED
STATEMENTS OF CONSOLIDATED ACCUMULATED DEFICIT
FOR THE THREE MONTHS AND SIX MONTHS ENDED
JUNE 30, 1995 AND 1994 (in Thousands) (UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
------------------ -------------------
1995 1994 1995 1994
------ ------ ------ ------
BALANCE AT BEGINNING OF
PERIOD $(658,889) $(608,578) $(641,427) $(594,630)
NET LOSS (17,237) (13,998) (34,699) (27,946)
--------- --------- --------- ---------
BALANCE AT END OF PERIOD $(676,126) $(622,576) $(676,126) $(622,576)
========= ========= ========= =========
See notes to consolidated financial statements.
<PAGE>
KBLCOM INCORPORATED
STATEMENTS OF CONSOLIDATED CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1995 AND 1994 (in Thousands)
(UNAUDITED)
1995 1994
------ ------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(34,699) $(27,946)
Adjustments to reconcile net loss
to net cash provided by operating
activities:
Depreciation and amortization 45,423 40,966
Equity in income of partnerships (15,128) (15,700)
Deferred income tax benefit (2,852) (1,775)
Changes in operating assets and liabilities:
Subscriber and other receivables, net (2,435) 313
Inventory and prepaid expenses 42 (656)
Due from parent (920) (9,659)
Accounts payable and accrued liabilities (5,479) 7,479
Interest payable 37,960 30,506
Prepayments for services and
subscriber deposits 1,883 222
Other 1,671 (159)
-------- --------
Net cash provided by operating activities 25,466 23,591
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property, plant and equipment (46,103) (32,692)
Other investments 834 (3,515)
-------- --------
Net cash used in investing activities (45,269) (36,207)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of long-term debt (40,797) (10,384)
Proceeds from short-term borrowings
from parent 60,600 23,000
-------- --------
Net cash provided by financing activities 19,803 12,616
-------- --------
NET CHANGE IN CASH AND CASH EQUIVALENTS 0 0
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0 0
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 0 $ 0
======== ========
See notes to consolidated financial statements.
<PAGE>
KBLCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995 (UNAUDITED)
1. GENERAL
The information presented in the following notes should be read
in conjunction with the KBLCOM Incorporated ("KBLCOM")
consolidated financial statements for the years ended December
31, 1994, 1993 and 1992. These quarterly financial statements are
unaudited; however, in the opinion of management, the interim
information reflects all adjustments (consisting only of normal
recurring adjustments) necessary for a full presentation of the
results for the interim periods.
2. EQUITY INVESTMENTS IN PARTNERSHIPS
KBLCOM's equity investments include its 50% ownership in Paragon.
Equity in Paragon's income represents substantially all of the
equity in income of the partnerships during the three month and
six month periods ended June 30, 1995 and 1994. The following
table sets forth certain summarized operating information of
Paragon:
Three Months Six Months
Ended June 30, Ended June 30,
----------------- ----------------
1995 1994 1995 1994
-------- ------- ------ ------
Paragon:
Revenues $90,867 $87,112 $177,856 $173,164
Operating expenses 68,759 64,769 134,056 128,147
Net income 15,526 15,450 46,557 31,456
KBLCOM's underlying
equity in the earnings
of investees:
Paragon 7,763 7,725 15,279 15,729
Other partnerships (13) 65 (151) (29)
------- ------- -------- --------
Total $ 7,750 $ 7,790 $ 15,128 $ 15,700
======= ======= ======== ========
During the first quarter of 1995, Paragon recognized a $16 million
gain on the sale of certain marketable equity securities. Because the
merger agreement described in Note 5 provides that proceeds from
selling certain assets inure to the benefit of Time Warner Inc. ("Time
Warner"), KBLCOM's share of such gain has been deferred and is
included in the consolidated balance sheet in accrued liabilities.
<PAGE>
3. LONG-TERM DEBT
In March 1995, KBL Cable, Inc. ("KBL Cable"), a wholly owned
subsidiary of KBLCOM, made a scheduled repayment of $15.8 million
principal amount of its senior notes and senior subordinated notes. In
the first quarter of 1995, KBL Cable repaid borrowings under its
senior bank credit facility in the amount of $25 million.
4. COMMITMENTS AND CONTINGENCIES
KBLCOM is routinely involved in litigation incidental to its business,
which involves claims for monetary amounts, some, but not all, of
which would be covered by insurance. In the opinion of management,
none of the existing litigation will have any material adverse effect
on the Company.
Taxes - In connection with the Internal Revenue Service's ("IRS")
audit of Houston Industries Incorporated s ("HII"), KBLCOM's parent,
consolidated federal income tax returns for 1987 through 1989, the IRS
proposed adjustments that would reduce KBLCOM's net operating losses
for such three-year period by $12.2 million. If the IRS prevails in
its position regarding the proposed adjustments, KBLCOM would be
liable to HII for $4.3 million in tax benefits previously recorded,
plus interest. HII has initiated administrative appeals with the IRS
regarding KBLCOM's proposed adjustments and substantive discussions
have taken place. In the opinion of management, no material adverse
effect will result from resolution of the IRS audit.
5. SUBSEQUENT EVENT
On July 6, 1995, KBLCOM merged with a Time Warner subsidiary in a
tax-deferred, stock-for-stock merger. At the closing, HII received one
million shares of Time Warner common stock and 11 million shares of
newly issued convertible preferred stock. In addition, Time Warner
paid HII approximately $621 million related to certain intercompany
debt of KBLCOM and assumed approximately $650 million of KBLCOM's
external debt and other liabilities.
Exhibit 99(d)
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Vision Cable Communications, Inc.
We have audited the accompanying balance sheets of Vision Cable Division of
Vision Cable Communications, Inc. and subsidiaries as of December 31, 1994
and 1993, and the related statements of operations and divisional equity
and cash flows for each of the three years in the period ended December 31,
1994. These financial statements are the responsibility of the division's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Vision Cable Division
of Vision Cable Communications, Inc. and subsidiaries at December 31, 1994
and 1993, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 1 and 7 to the financial statements, effective
January 1, 1993, the division adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes."
ERNST & YOUNG LLP
New York, New York
July 28, 1995
Exhibit 99(e)
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Newhouse Broadcasting Corporation
We have audited the accompanying balance sheets of Newhouse Broadcasting
Cable Division of Newhouse Broadcasting Corporation and subsidiaries as of
July 31, 1994 and 1993, and the related statements of operations and
divisional equity and cash flows for each of the three years in the period
ended July 31, 1994. These financial statements are the responsibility of
the division's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Newhouse Broadcasting
Cable Division of Newhouse Broadcasting Corporation and subsidiaries at
July 31, 1994 and 1993, and the results of its operations and its cash
flows for each of the three years in the period ended July 31, 1994, in
conformity with generally accepted accounting principles.
As discussed in Notes 1, 8 and 11 to the financial statements, effective
August 1, 1993, the division adopted Statement of Financial Accounting
Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other Than Pensions" and SFAS No. 109, "Accounting for Income
Taxes."
ERNST & YOUNG LLP
New York, New York
July 28, 1995
