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):
November 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)
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Item 5. Other Events.
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Time Warner Inc. ("Time Warner") and Time Warner
Entertainment Company, L.P. ("TWE"), 74.49% of the pro rata
priority capital and residual equity interests as well as certain
priority capital interests of which are owned by Time Warner and
certain of its wholly-owned subsidiaries, have recently entered
into, or intend to enter into, the transactions described below:
(i) on October 2, 1995 and September 5, 1995 (as
previously reported on the Form 8-K of Time Warner dated
August 31, 1995), Toshiba Corporation ("Toshiba") and ITOCHU
Corporation ("ITOCHU"), respectively, each exchanged (1)
their 5.61% pro rata equity interests in TWE, (2) their
6.25% residual equity interests in TW Service Holding I,
L.P. and TW Service Holding II, L.P., each of which owns
certain assets related to the TWE businesses (the "Time
Warner Service Partnerships"), and (3) their options to
increase their interests in TWE under certain circumstances
for, in the case of ITOCHU, 8 million shares of two series
of new convertible preferred stock ("Series G Preferred
Stock" and "Series H Preferred Stock") of Time Warner and,
in the case of Toshiba, 7 million shares of new convertible
preferred stock of Time Warner ("Series I Preferred Stock")
and $10 million in cash (the "ITOCHU/Toshiba Transaction").
As a result of the ITOCHU/Toshiba Transaction, Time Warner
and certain of its wholly-owned subsidiaries collectively
now own 74.49% of the pro rata priority capital and residual
equity interests in TWE and certain additional senior and
junior priority capital interests. A subsidiary of U S WEST,
Inc. owns the remaining 25.51% of the pro rata priority
capital and residual equity limited partnership interests in
TWE;
(ii) on September 22, 1995 (as previously reported on
the Form 8-K of Time Warner dated September 22, 1995), Time
Warner announced that it had entered into an Agreement and
Plan of Merger (the "Merger Agreement"), providing for
Turner Broadcasting System, Inc. ("TBS") to become a
wholly-owned subsidiary of Time Warner through a merger with
a subsidiary of Time Warner. Alternatively, the Merger
Agreement contemplates that the structure of the transaction
may be changed, if the parties so agree, to provide for the
merger of each of Time Warner and TBS with separate
subsidiaries of a newly formed holding company (the "Holding
Company Transaction" and, in either case, the "TBS
Transaction"). Time Warner currently expects that the
parties to the Merger Agreement will agree to implement the
Holding Company Transaction. Pursuant to the Holding Company
Transaction, the issued and outstanding shares of each class
of the capital stock of Time Warner will be converted into
shares of an identical class of capital stock of the newly
formed holding company. In connection with the TBS
Transaction, Time Warner has agreed to enter into certain
agreements and related transactions with certain
shareholders of TBS, including R. E. Turner and Liberty
Media Corporation ("LMC"). The Merger Agreement and certain
related agreements provide for the issuance by the newly
formed holding company of approximately 171.3 million shares
of common stock, par value $.01 per share (such holding
company stock, or, prior to formation of such holding
company, the existing Time Warner common stock, being
referred to herein as the "Common Stock") (including 50.8
million shares of a special class of non-redeemable Common
Stock to be issued to LMC, the "LMC Class Common Stock"), in
exchange for the outstanding TBS capital stock, the issuance
of approximately 13 million stock options to replace all
outstanding TBS options and the assumption of TBS'
indebtedness (which approximated $2.3 billion at September
30, 1995). As part of the TBS Transaction, LMC will receive
an additional five million shares of LMC Class Common Stock
pursuant to a separate option agreement (the "Option
Agreement"), which, together with the 50.8 million shares
received pursuant to the TBS Transaction, will be placed in
a voting trust or, in certain circumstances, exchanged for
shares of another special class of non-voting,
non-redeemable common stock.
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(iii) on September 18, 1995, Time Warner redeemed
approximately $1 billion principal amount of its 8.75%
Convertible Subordinated Debentures due 2015 (the "8.75%
Convertible Debentures") for an aggregate redemption price
of $1.06 billion, including redemption premiums and accrued
interest thereon. The redemption was 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 raised from the issuance
of the PERCS (as defined below) in August 1995 and available
cash and equivalents (the "Market Refinancings");
(iv) on August 15, 1995, Time Warner issued
approximately 12.1 million Time Warner-obligated mandatorily
redeemable preferred securities of a wholly-owned subsidiary
("PERCS") for aggregate gross proceeds of $374 million. The
sole assets of the subsidiary that is the obligor on the
PERCS are $385 million principal amount of 4% subordinated
notes of Time Warner due December 23, 1997. Cumulative cash
distributions are payable on the PERCS at an annual rate of
4%, or $1.24 per PERCS. The PERCS are mandatorily redeemable
on December 23, 1997, for an amount per PERCS equal to the
lesser of $54.41, and the market value of a share of common
stock of Hasbro, Inc. ("Hasbro") on December 17, 1997,
payable in cash or, at Time Warner's option, Hasbro common
stock. Time Warner has the right to redeem the PERCS at any
time prior to December 23, 1997, at an amount per PERCS
equal to $54.41 (or in certain limited circumstances the
lesser of such amount and the market value of a share of
Hasbro common stock at the time of redemption) plus accrued
and unpaid distributions thereon and a declining premium,
payable in cash or, at Time Warner's option, Hasbro common
stock. Time Warner owns approximately 12.1 million shares of
Hasbro common stock, which can be used by Time Warner, at
its election, to satisfy its obligations under the PERCS or
its obligations under its zero coupon exchangeable notes due
2012. Such zero coupon notes are exchangeable and redeemable
into an aggregate 12.1 million shares of Hasbro common
stock. Time Warner has certain obligations relating to the
PERCS which amount to a full and unconditional guaranty of
such subsidiary's obligations with respect thereto;
(v) on August 15, 1995, Time Warner redeemed all of its
$1.8 billion principal amount of outstanding Redeemable
Reset Notes due August 15, 2002 (the "Reset Notes") in
exchange for new securities (the "Reset Notes Refinancing"),
consisting of approximately $454 million aggregate principal
amount of Floating Rate Notes due August 15, 2000,
approximately $272 million aggregate principal amount of
7.975% Notes due August 15, 2004, approximately $545 million
aggregate principal amount of 8.11% Debentures due August
15, 2006, and approximately $545 million aggregate principal
amount of 8.18% Debentures due August 15, 2007
(collectively, the "Exchange Securities");
(vi) 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 an additional
972,000 subscribers. The other 50% interest in Paragon was
already owned by TWE;
(vii) 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 enables such entities to refinance
certain indebtedness assumed from the companies acquired or
to be acquired in the Acquisitions (as defined below), to
refinance TWE's indebtedness under a pre-existing bank
credit agreement and to finance the ongoing working capital,
capital expenditure and other corporate needs of each
borrower (the "Bank
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Refinancing"). The Market Refinancings, the Reset Notes
Refinancing and the Bank Refinancing are referred to herein
as the "1995 Debt Refinancings";
(viii) 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");
(ix) 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, of which
certain of the transactions closed during the second and
third quarters of 1995 (the "Unclustered Cable
Disposition");
(x) 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");
(xi) 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
(xii) 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 TBS Transaction, the
ITOCHU/Toshiba Transaction, the Asset Sale Transactions, the
Cable Transactions and the 1995 Debt Refinancings are referred to
herein as the "Transactions".
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Item 7. Financial Statements and Exhibits.
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(a) 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
September 30, 1995 give effect to the Unclustered Cable
Disposition and, with respect to the balance sheet of Time Warner
only, also give effect to the TBS Transaction and the CVI
Acquisition, in each case as if such transactions occurred at
such date. The Summit Acquisition, the KBLCOM Acquisition, the
1995 Debt Refinancings, the Six Flags Transaction, the TWE-A/N
Transaction and the ITOCHU/Toshiba Transaction are already
reflected in the respective historical balance sheets of Time
Warner and the Entertainment Group as of September 30, 1995. The
following pro forma consolidated condensed statements of
operations of Time Warner and the Entertainment Group for the
nine months ended September 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 TBS Transaction, the ITOCHU/Toshiba Transaction and
the Acquisitions, in each case as if the transactions occurred at
the beginning of such periods. The pro forma consolidated
condensed financial 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 nine months ended
September 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, (v) Summit and (vi) TBS.
The pro forma consolidated condensed financial
statements have been derived from the historical financial
statements of the respective entities as of and for the nine
months ended September 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), (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 and (4) KBLCOM, which was acquired
on July 6, 1995 and consequently, such pro forma financial
statements have been derived from the unaudited consolidated
financial statements for such entity for the six months ended
June 30, 1995 and for the year ended December 31, 1994, which
have been previously filed in connection with Time Warner's
Current Reports on Form 8-K dated May 30, 1995 and August 14,
1995, respectively. Historical financial statements are (a)
attached as Exhibits hereto with respect to the financial
statements of the Gerry Companies as of and for the nine months
ended September 30, 1995, (b) incorporated herein by reference
with respect to the
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financial statements of TBS and CVI as of and for the nine months
ended September 30, 1995, (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
and (d) previously filed in connection with Time Warner's Current
Report on Form 8-K dated September 22, 1995, with respect to the
financial statements of TBS 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.
TBS Transaction
Pro forma adjustments for the TBS Transaction reflect
(1) the issuance of approximately 171.3 million shares of Common
Stock, including 50.8 million shares of LMC Class Common Stock to
be issued to LMC, in exchange for the outstanding TBS capital
stock, (2) the issuance of an additional 5 million shares of LMC
Class Common Stock to be received by LMC in connection with the
Option Agreement, (3) the issuance of approximately 13 million
stock options to replace all outstanding TBS options and (4) the
assumption or incurrence of approximately $2.4 billion of
indebtedness, including $288 million of convertible debt
securities. The convertible debt securities may be converted at
the option of the holders into an additional 9.1 million shares
of TBS Class B Common Stock prior to the consummation of the
Merger. Should such conversion occur, (1) Time Warner's pro forma
shareholders' equity at September 30, 1995 would be increased by
approximately $300 million to reflect the issuance of
approximately 6.8 million additional shares of Common Stock, (2)
Time Warner's pro forma indebtedness at September 30, 1995 would
be reduced by $288 million and (3) Time Warner's pro forma loss
before extraordinary item and loss before extraordinary item per
common share for the nine months ended September 30, 1995 and the
year ended December 31, 1994 would be reduced by $9 million ($.03
per common share) and $12 million ($.03 per common share),
respectively.
The TBS Transaction will be accounted for by the
purchase method of accounting for business combinations and,
accordingly, the estimated cost to acquire such assets will be
allocated to the underlying net assets in proportion to their
respective fair values. The valuations and other studies which
will provide the basis for such an allocation have not been
completed. As more fully described in the notes to the pro forma
consolidated condensed financial statements, a preliminary
allocation of the excess of cost over the book value of the net
assets to be acquired has been made to goodwill.
ITOCHU/Toshiba Transaction
Pro forma adjustments for the ITOCHU/Toshiba
Transaction reflect the exchange by each of ITOCHU and Toshiba of
(1) its 5.61% pro rata priority capital and residual equity
interests in TWE, (2) its 6.25% residual equity interests in the
Time Warner Service Partnerships and (3) its option to increase
its interests in TWE under certain circumstances, for an
aggregate 15 million shares of convertible preferred stock
(Series G Preferred Stock, Series H Preferred Stock and Series I
Preferred Stock) and $10 million in cash.
Each share of the Series G Preferred Stock, Series
H Preferred Stock and Series I Preferred Stock issued in
connection with the ITOCHU/Toshiba Transaction (i) has a
liquidation value of $100 per share,(ii) is convertible,
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immediately with respect to the Series G Preferred Stock and
Series I Preferred Stock and after five years (or earlier under
certain circumstances) with respect to the Series H Preferred
Stock, into an aggregate 31.2 million shares of Common Stock at a
conversion price of $48 per share (based on its liquidation
value) and (iii) 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 each share may be
converted. Time Warner has the right to exchange the Series G
Preferred Stock and Series I Preferred Stock for Common Stock at
the stated conversion price after four years (and after five
years with respect to the Series H Preferred Stock) and, after
four years, Time Warner has the right to redeem each series, in
whole or in part, for cash at the liquidation value plus accrued
dividends.
To the extent that any of the Series G Preferred Stock,
Series H Preferred Stock or Series I 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 dividends paid on shares of Common
Stock multiplied by the number of shares of Common Stock into
which their shares of such series of preferred stock are
convertible. Except for holders of the Series H Preferred Stock,
holders of such shares are entitled to vote with the Common Stock
on all matters on which the Common Stock is entitled to vote, and
each share of such series of preferred stock is entitled to two
votes on any such matter.
The ITOCHU/Toshiba Transaction has been accounted for
by the purchase method of accounting for business combinations
and, accordingly, the estimated cost to acquire each of ITOCHU
and Toshiba's respective interests in TWE and the Time Warner
Service Partnerships has been allocated to Time Warner's
investment in the Entertainment Group.
Cable Transactions
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 an
additional 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 and
approximately $2.1 billion aggregate 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
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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 $102 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 dividends paid on
shares of Common Stock multiplied by the number of shares into which
their shares of such series of preferred stock are convertible.
Holders of such shares 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 such series of preferred stock is and will be
entitled to two votes on any such matter.
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.
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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.
1995 Debt Refinancings
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 $5.534
billion, consisting of (1) borrowings of $5.171 billion in the
aggregate under the New Credit Agreement and (2) $363 million of
net proceeds received 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: (i) are expected
to be used to repay or redeem $1.221 billion of indebtedness to
be assumed in the CVI Acquisition, plus redemption premiums
thereon of $16 million, (ii) have been used to repay or redeem
(a) $1.086 billion of indebtedness assumed or incurred in the
KBLCOM Acquisition (plus redemption premiums and accrued interest
thereon of $19 million) and (b) $204 million of Paragon
indebtedness, funded equally by Time Warner and TWE, (iii) have
been used to repay $2.575 billion of indebtedness under a
pre-existing bank credit agreement, (iv) have been used to redeem
approximately $1 billion principal amount of the 8.75%
Convertible Debentures, plus redemption premiums and accrued
interest thereon of $63 million and (v) have been used to pay for
$50 million of financing costs. In addition to such $5.534
billion of refinancings, $244 million is expected to be borrowed
under the New Credit Agreement to refinance additional
indebtedness incurred in connection with the CVI Acquisition, of
which $193 million relates to the consummation of the CVI
Acquisition and $51 million relates to the payment of transaction
costs and other liabilities. Pro forma adjustments for the 1995
Debt Refinancings 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%,
<PAGE>
respectively, in the nine months ended September 30, 1995 and the year
ended December 31, 1994. Based on the average LIBOR rates in effect
during the nine months ended September 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 $5.415 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, 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.
Asset Sale Transactions
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 Six Flags
effective as of June 23, 1995 and now accounts 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, of which approximately $875 million is
already reflected in TWE's historical balance sheet at September 30,
1995. TWE expects to realize aggregate income of approximately $325
million as a result of the Asset Sale Transactions, of which $140
million was deferred by TWE principally as a result of its guarantee
of certain 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 September 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
September 30, 1995
(millions, unaudited)
<CAPTION>
Subtotal TBS Transaction
Time Warner ---------------------------
Time Warner CVI TWE Pre-TBS TBS Pro Forma Time Warner
Historical Acquisition(a) Transactions(b) Pro Forma Historical(c) Adjustments(d) Pro Forma
----------- -------------- --------------- ----------- ------------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
A S S E T S
Cash and equivalents $ 378 $ 20 $ 53 $ 451 $ 85 $ -- $ 536
Other current assets 2,755 24 -- 2,779 1,148 (143) 3,784
-------- -------- -------- -------- -------- -------- --------
Total current assets 3,133 44 53 3,230 1,233 (143) 4,320
Investments in and amounts
due to and from Entertainment
Group 6,022 -- 60 6,082 -- -- 6,082
Other investments 2,499 27 -- 2,526 -- (531) 1,995
Noncurrent inventories -- -- -- -- 1,868 -- 1,868
Property, plant and equipment 1,088 376 -- 1,464 331 -- 1,795
Goodwill 5,263 851 -- 6,114 262 8,062 14,438
Cable television franchises 1,716 2,405 -- 4,121 -- -- 4,121
Other assets 1,701 27 -- 1,728 445 -- 2,173
-------- -------- -------- -------- -------- -------- --------
Total assets $ 21,422 $ 3,730 $ 113 $ 25,265 $ 4,139 $ 7,388 $ 36,792
======== ======== ======== ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Total current liabilities $ 2,837 $ 126 $ 53 $ 3,016 $ 744 $ -- $ 3,760
Long-term debt 9,931 1,981 -- 11,912 2,336 100 14,348
Deferred income taxes 3,469 874 (7) 4,336 395 -- 4,731
Other long-term liabilities 1,119 -- -- 1,119 242 -- 1,361
Company-obligated mandatorily
redeemable preferred securities
of subsidiary (1) 374 -- -- 374 -- -- 374
Shareholders' equity:
Preferred stock 30 7 -- 37 -- -- 37
Common stock 387 2 -- 389 -- (383) 6
Paid-in capital 5,410 740 -- 6,150 -- 8,093 14,243
Unrealized gains on certain
marketable securities 134 -- -- 134 -- -- 134
TBS shareholders' equity -- -- -- -- 422 (422) --
Accumulated deficit (2,269) -- 67 (2,202) -- -- (2,202)
-------- -------- -------- -------- -------- -------- --------
Total shareholders' equity 3,692 749 67 4,508 422 7,288 12,218
-------- -------- -------- -------- -------- -------- -------
Total liabilities and
shareholders' equity $ 21,422 $ 3,730 $ 113 $ 25,265 $ 4,139 $ 7,388 $ 36,792
======== ======== ======== ======== ======== ======== ========
- ---------------
(1) The sole assets of the subsidiary that is the obligor on
the preferred securities are $385 million principal amount of
subordinated notes of Time Warner due December 23, 1997. Such
preferred securities are redeemable for cash or, at Time Warner's
option, approximately 12.1 million shares of Hasbro, Inc. common
stock owned by Time Warner.
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1995
(millions, unaudited)
<CAPTION>
Subtotal TBS Transaction
Time Warner ----------------------------
Pre-TBS TBS Pro Forma Time Warner
Pro Forma Historical(e) Adjustments(f) Pro Forma
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 6,249 $ 2,515 $ -- $ 8,764
Cost of revenues* 3,813 1,600 184 5,597
Selling, general and administrative* 2,097 635 -- 2,732
------- ------- ------- -------
Operating expenses 5,910 2,235 184 8,329
------- ------- ------- -------
Business segment operating income (loss) 339 280 (184) 435
Equity in pretax income of Entertainment
Group 259 -- -- 259
Interest and other, net (770) (141) (10) (921)
Corporate expenses (57) -- -- (57)
------- ------- ------- -------
Income (loss) before income taxes (229) 139 (194) (284)
Income tax (provision) benefit (25) (56) 18 (63)
------- ------- ------- -------
Income (loss) before extraordinary item (254) 83 (176) (347)
Preferred dividend requirements (109) -- -- (109)
------- ------- ------- -------
Income (loss) before extraordinary item
applicable to common shares $ (363) $ 83 $ (176) $ (456)
======= ======== ======= =======
Income (loss) before extraordinary item
per common share $ (.94) $ (.81)
======= =======
Average common shares 386.4 $ 562.7
======= =======
- ---------------
* Includes depreciation and amortization
expense of: $ 699 $ 149 $ 150 $ 998
======= ========== ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1995
(millions, unaudited)
<CAPTION>
Subtotal
ITOCHU/ Time
Time Summit KBLCOM CVI 1995 Debt TWE Toshiba Warner
Warner Acquisi- Acquisi- Acquisi- Refinanc- Transac- Transac- Pre-TBS
Historical tion (g) tion (h) tion (i) ings (j) tions (k) tion (l) Pro Forma
----------- -------- -------- --------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $5,705 $ 22 $ 139 $ 383 $ -- $ -- $ -- $6,249
Cost of revenues* 3,396 15 102 300 -- -- -- 3,813
Selling, general
and administra-
tive* 1,966 7 49 75 -- -- -- 2,097
----- ---- ----- ------ ----- ----- ----- ------
Operating expenses 5,362 22 151 375 -- -- -- 5,910
----- ---- ----- ------ ----- ----- ----- ------
Business segment
operating income
(loss) 343 -- (12) 8 -- -- -- 339
Equity in pretax
income of
Entertainment
Group 235 -- -- -- 13 11 -- 259
Interest and
other, net (615) (5) (54) (117) 50 -- (29) (770)
Corporate expenses (57) -- -- -- -- -- -- (57)
----- ---- ----- ------ ----- ----- ----- ------
Income (loss)
before income
taxes (94) (5) (66) (109) 63 11 (29) (229)
Income tax (provi-
sion) benefit (63) 1 24 32 (26) (4) 11 (25)
----- ---- ----- ------ ----- ----- ----- ------
Income (loss)
before extra-
ordinary item (157) (4) (42) (77) 37 7 (18) (254)
Preferred
dividend
requirements (24) (4) (21) (18) -- -- (42) (109)
----- ------ ----- ------ ----- ----- ----- ------
Income (loss)
before extra-
ordinary item to
common shares $ (181) $ (8) $ (63) $ (95) $ 37 $ 7 $ (60) $ (363)
====== ====== ===== ====== ===== ===== ===== =======
Income (loss)
before extra-
ordinary item
per common share $ (.47) $ (.02) $ (.16) $ (.25) $ .10 $ .02 $(.16) $ (.94)
====== ====== ====== ====== ===== ===== ===== =======
Average common
shares 382.5 .7 .7 2.5 -- -- -- 386.4
====== ====== ====== ====== ===== ===== ===== =======
- ------------------
* Includes depre-
ciation and
amortization
expense of: $ 398 $ 11 $ 84 $ 206 $ -- $ -- $ -- $ 699
====== ====== ====== ====== ===== ===== ===== =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(millions, unaudited)
<CAPTION>
Subtotal TBS Transaction
Time Warner ---------------------------
Pre-TBS TBS Pro Forma Time Warner
Pro Forma Historical(e) Adjustments(f) Pro Forma
----------- ------------- -------------- -----------
<S> <C> <C> <C> <C>
Revenues $ 8,217 $ 2,809 $ -- $ 11,026
Cost of revenues* 4,975 1,815 236 7,026
Selling, general and administrative* 2,590 706 -- 3,296
------- ------- -------- -------
Operating expenses 7,565 2,521 236 10,322
------- ------- -------- -------
Business segment operating income (loss) 652 288 (236) 704
Equity in pretax income of Entertainment
Group 208 -- -- 208
Interest and other, net (940) (209) 6 (1,143)
Corporate expenses (76) -- -- (76)
------- ------- -------- -------
Income (loss) before income taxes (156) 79 (230) (307)
Income tax (provision) benefit (110) (33) 13 (130)
------- ------- -------- -------
Net income (loss) (266) 46 (217) (437)
Preferred dividend requirements (146) -- -- (146)
------- ------- -------- -------
Net income (loss) applicable to common
shares $ (412) $ 46 $ (217) $ (583)
====== ======= ======== =======
Net income (loss) per common share $ (1.07) $ (1.04)
====== =======
Average common shares 384.0 560.3
====== =======
- --------
* Includes depreciation and
amortization expense of: $ 912 $ 153 $ 198 $ 1,263
====== ====== ======== =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
TIME WARNER INC.
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(millions, unaudited)
<CAPTION>
ITOCHU/ Subtotal
Time Summit KBLCOM CVI 1995 Debt TWE Toshiba Time Warner
Warner Acquisi- Acquisi- Acquisi- Refinan- Trans- Trans- Pre-TBS
Historical tion(g) tion(h) tion(i) cings(j) actions(k) action(l) Pro Forma
---------- -------- -------- --------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 7,396 $ 63 $ 265 $ 493 $ -- $ -- $ -- $8,217
Cost of revenues* 4,307 46 193 429 -- -- -- 4,975
Selling, general and
administrative* 2,376 13 98 103 -- -- -- 2,590
------- ------- ------- ------- ------- ------- ------- ------
Operating expenses 6,683 59 291 532 -- -- -- 7,565
------- ------- ------- ------- ------- ------- ------- ------
Business segment operating
income (loss) 713 4 (26) (39) -- -- -- 652
Equity in pretax income of
Entertainment Group 176 -- -- -- 23 9 -- 208
Interest and other, net (724) (15) (100) (147) 84 -- (38) (940)
Corporate expenses (76) -- -- -- -- -- -- (76)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes 89 (11) (126) (186) 107 9 (38) (156)
Income tax (provision) benefit (180) 3 51 47 (44) (1) 14 (110)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) (91) (8) (75) (139) 63 8 (24) (266)
Preferred dividend requirements (13) (12) (41) (24) -- -- (56) (146)
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss) applicable to
common shares $ (104) $ (20) $ (116) $ (163) $ 63 $ 8 $ (80) $ (412)
======= ======= ======= ======= ======= ======= ======= =======
Net income (loss) per common
share $ (.27) $ (.06) $ (.30) $ (.42) $ .16 $ .02 $ (.20) $ (1.07)
======= ======= ======= ======= ======= ======= ======= =======
Average common shares 378.9 1.6 1.0 2.5 -- -- -- 384.0
======= ======= ======= ======= ======= ======= ======= =======
- -----------------
* Include depreciation and
amortization expense of: $ 437 $ 31 $ 166 $ 278 $ -- $ -- $ -- $ 912
======= ======= ======= ======= ======== ======= ======= =======
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 CVI and
the Gerry Companies as of September 30, 1995, including
$1.721 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 $749 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 $219 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 $2.076 billion to cable television franchises in
the amount of $2.092 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 $851 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.
Pro forma borrowings of $1.237 under the New Credit
Agreement which will be used to repay or redeem $1.221
billion of indebtedness to be assumed in the CVI
Acquisition, plus redemption premiums thereon of $16
million, as part of the 1995 Debt Refinancings, have no net
impact on the pro forma financial position of Time Warner.
Accordingly, such refinancing has not been reflected in Time
Warner's pro forma consolidated condensed balance sheet at
September 30, 1995.
(b) 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 of
the Six Flags Transaction is already reflected in each
company's historical balance sheet as of September 30, 1995.
Pro forma adjustments to record the Unclustered Cable
Disposition as of September 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 $113 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
September 30, 1995, (2) a decrease in shareholders' equity
of $46 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 $53 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
Unclustered Cable Disposition in accordance with the terms
of the TWE Partnership Agreement, (4) an increase in current
liabilities of $53 million with respect to the previously-
unrecorded, related current income tax payable due as a
result of the transactions, of which $7 million has been
reclassified from Time Warner's previously-provided deferred
income tax liability.
(c) Reflects the historical financial position of TBS at
September 30, 1995, including $2.336 billion of long-term
indebtedness that will be assumed pursuant to the TBS
Transaction.
<PAGE>
(d) Pro forma adjustments to record the TBS Transaction reflect (1) a
reclassification in shareholders' equity from common stock to
paid-in capital to reflect the reduction in the par value of
common stock from $1.00 per share to $.01 per share, (2) the
issuance of (i) 171.3 million shares of Common Stock, including
50.8 million shares of LMC Class Common Stock to be received by
LMC, in exchange for the outstanding TBS capital stock, (ii) an
additional 5 million shares of LMC Class Common Stock to be
received by LMC in connection with the Option Agreement and (iii)
approximately 13 million stock options to replace all outstanding
TBS stock options, valued at an aggregate of $7.710 billion for
pro forma purposes based on a Common Stock price of $42.375 per
share, (3) the writeoff of approximately $262 million of
pre-existing goodwill of TBS and approximately $143 million of
TBS inventory to conform TBS' accounting policy with respect to
the capitalization and amortization of film exploitation costs to
Time Warner's accounting policy, (4) the incurrence of $100
million of additional indebtedness for the payment of transaction
costs and other related liabilities, (5) the allocation of the
excess of the purchase price over the book value of the net
assets acquired of $8.324 billion to goodwill and (6) the
elimination of (i) Time Warner's historical investment in TBS in
the amount of $531 million and (ii) TBS' historical stockholders'
equity in the amount of $422 million.
(e) Reflects the historical operating results of TBS for the nine
months ended September 30, 1995 and the year ended December 31,
1994, excluding an extraordinary loss on the retirement of debt
of $25 million in 1994.
(f) Pro forma adjustments to record the TBS Transaction for the nine
months ended September 30, 1995 and the year ended December 31,
1994 reflect (1) an increase of $184 million and $236 million,
respectively, in cost of revenues consisting of (i) a $6 million
and $10 million reduction, respectively, of TBS' historical
amortization of pre-existing goodwill, (ii) a $156 million and
$208 million increase, respectively, in amortization with respect
to the excess cost to acquire TBS that has been allocated to
goodwill and amortized on a straight-line basis over a forty-year
period and (iii) a $34 million and $38 million increase,
respectively, in the amortization of capitalized film
exploitation costs to conform TBS' accounting policy to Time
Warner's accounting policy, (2) an increase of $5 million and $6
million, respectively, in interest expense on the $100 million of
additional indebtedness for the payment of transaction costs and
other related liabilities, (3) an increase of $5 million and a
decrease of $12 million, respectively, in interest and other, net
due to the elimination of Time Warner's historical equity
accounting for its investment in TBS and (4) a decrease of $18
million and $13 million, respectively, in income tax expense as a
result of income tax benefits provided at a 41% tax rate.
(g) 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 closure of
Summit's corporate facilities and the termination of related
personnel as a direct result of the integration of Summit's
operations into Time Warner's and TWE's operating structure, (2)
an increase of $8 million and $23 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 $376 million and amortized on a
straight-line basis over a twenty-year period and (ii) goodwill
in the amount of $146 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.
<PAGE>
(h) Reflects the historical operating results of KBLCOM for the
six-month pre-acquisition period ending July 6, 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 closure of
KBLCOM's corporate and regional facilities and the termination of
related personnel as a direct result of the integration of
KBLCOM's operations into Time Warner's and TWE's operating
structure 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 $39 million and $71
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 $91 million, respectively, increase in amortization
with respect to the excess cost to acquire KBLCOM that has been
allocated to (i) investments in the amount of $655 million and
amortized on a straight-line basis over a twenty-year period,
(ii) cable television franchises in the amount of $861 million
and amortized on a straight-line basis over a twenty-year period
and (iii) goodwill in the amount of $586 million 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 $17 million and $34 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.
(i) Reflects the historical operating results of CVI and the Gerry
Companies for the nine months ended September 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 $19 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 $86 million and $114 million, respectively, in
cost of revenues consisting of a $9 million and $12 million
reduction, respectively, of CVI's historical amortization of
pre-existing goodwill and a $95 million and $126 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 in the amount of
$2.092 billion and amortized on a straight-line basis over a
twenty-year period and (ii) goodwill in the amount of $851
million and amortized on a straight-line basis over a forty-year
period, (3) an increase of $11 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 $12 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 $42 million and $55 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 $18 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.
<PAGE>
(j) Pro forma adjustments to record the 1995 Debt Refinancings for
the nine months ended September 30, 1995 and the year ended
December 31, 1994 reflect interest savings of $63 million and
$107 million, respectively, from (1) $5.171 billion of aggregate
borrowings under the New Credit Agreement which (i) are expected
to be used to repay or redeem $1.221 billion of indebtedness to
be assumed in the CVI Acquisition, plus redemption premiums
thereon of $16 million, (ii) were used to refinance $1.086
billion of indebtedness assumed or incurred in the KBLCOM
Acquisition, plus redemption premiums and accrued interest
thereon of $19 million, (iii) were used to repay $204 million of
Paragon indebtedness, funded equally by Time Warner and TWE, (iv)
were used to repay $2.575 billion of indebtedness under a
pre-existing bank credit agreement and (v) were used to pay for
$50 million of financing costs, (2) the September 1995 redemption
of approximately $1 billion principal amount of 8.75% Convertible
Debentures for an aggregate redemption price of $1.06 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 raised from the issuance of the PERCS in August 1995
and (iii) approximately $200 million of available cash and
equivalents and (3) the August 1995 non-cash redemption of $1.8
billion principal amount of outstanding Reset Notes in exchange
for an equal amount of Exchange Securities, as set forth on the
following page (in millions).
Except with respect to the refinancing of $1.221 billion of
indebtedness related to the CVI Acquisition, which had not
occurred as of September 30, 1995, all pro forma adjustments
to record the 1995 Debt Refinancings for the nine months
ended September 30, 1995 reflect the incremental effect on
Time Warner's operating results from each refinancing that
had closed during the period.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
---------------------------- ----------------------------
Equity in Pretax Equity in Pretax
Income of Income of
Interest and Entertainment Interest and Entertainment
Other, Net Group Other, 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
$1.218 billion, $2.702 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 nine months ended
September 30, 1995 and 5.375%, 5% and 5%,
respectively, for the year ended December 31, 1994 $ 42 $ 88 $ 65 $ 136
o Pro forma borrowings by TWI Cable of $1.237
billion under the New Credit Agreement to
refinance CVI debt, at estimated annual interest
rates of 6.875% and 5.375% for the nine months
ended September 30, 1995 and the year ended
December 31, 1994. 64 - 67 -
o Issuance by Time Warner of $500 million of 7.75%
Notes and approximately 12.1 million PERCS (4%
yield) 28 - 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
nine months ended September 30, 1995 and the year
ended December 31, 1994 90 - 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 $1.221 billion of
indebtedness assumed in the CVI Acquisition (66) - (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, of which $102 million was funded by
each of Time Warner and TWE, and the remainder was
funded by Paragon's available cash and equivalents - (9) - (18)
o Redemption of approximately $1 billion principal
amount of 8.75% Convertible Debentures (62) - (88) -
o Redemption of $1.8 billion of Time Warner's Reset
Notes (8.7% yield) (93) - (140) -
o Amortization of $11 million of deferred financing
costs incurred by Time Warner in connection with
issuance of the PERCS 3 - 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
pre-existing TWE credit agreement - (12) - (25)
---- ------ ----- -----
Net decrease in interest costs $ (50) $ (13) $ (84) $ (23)
==== ===== ==== ====
</TABLE>
<PAGE>
Income taxes of $26 million and $44 million, respectively,
have been provided at a 41% tax rate on the aggregate net
reduction in interest costs.
(k) Pro forma adjustments for the nine months ended September
30, 1995 and the year ended December 31, 1994 to record $11
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.
(l) Pro forma adjustments to record the ITOCHU/Toshiba
Transaction for the nine months ended September 30, 1995 and
the year ended December 31, 1994 reflect (1) an increase of
$29 million and $38 million, respectively, in interest and
other, net, consisting of (i) an increase of $16 million and
$21 million, respectively, with respect to the amortization
of the $417 million aggregate excess cost to acquire the
minority interests in TWE held by ITOCHU and Toshiba, which
will be amortized on a straight-line basis over a twenty-
year period and (ii) an increase of $13 million and $17
million, respectively, with respect to the elimination of
historical amortization related to Time Warner's excess
interest in the net assets of TWE over the net book value of
its investment in TWE, which resulted from the initial
investments in TWE by ITOCHU and Toshiba, (2) a decrease of
$11 million and $14 million, respectively, in income tax
expense as a result of income tax benefits provided at a 41%
tax rate and (3) an increase of $42 million and $56 million,
respectively, in preferred dividend requirements of the
preferred stock to be issued in the ITOCHU/Toshiba
Transaction.
<PAGE>
<TABLE>
<CAPTION>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED BALANCE SHEET
September 30, 1995
(millions, unaudited)
Entertainment Entertainment
Group Asset Sale Group
Historical Transactions(a) Pro Forma
------------- --------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and equivalents $ 439 $ -- $ 439
Other current assets 2,504 -- 2,504
------- ------- -------
Total current assets 2,943 -- 2,943
Noncurrent inventories 1,763 -- 1,763
Loan receivable from Time Warner 400 -- 400
Property, plant and equipment 4,794 (18) 4,776
Goodwill 4,151 -- 4,151
Cable television franchises 3,385 (47) 3,338
Other assets 1,105 -- 1,105
-------- ------- -------
Total assets $18,541 $ (65) $18,476
======== ======= =======
LIABILITIES AND PARTNERS' CAPITAL
Total current liabilities $ 2,955 $ -- $ 2,955
Long-term debt 6,181 (125) 6,056
Other long-term liabilities 933 -- 933
Minority interests 634 -- 634
Time Warner General Partners' senior capital 1,398 -- 1,398
Partners' capital 6,440 60 6,500
------- ------- -------
Total liabilities and partners' capital $18,541 $ (65) $18,476
======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Nine Months Ended September 30, 1995
(millions, unaudited)
Entertain- TWE-A/N Consolidation 1995 Debt TWI-TWE Asset Sale Entertain-
ment Group Trans- of Refinan- Management Trans- ment Group
Historical action(b) Paragon(c) cings(d) Fees(e) actions(f) Pro Forma
---------- --------- ------------- --------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues $ 6,871 $ 137 $ 179 $ -- $ 16 $ (258) $ 6,945
Cost of revenues* 4,686 51 139 -- -- (199) 4,677
Selling, general and
administrative* 1,436 56 31 -- -- (16) 1,507
------- ------- ------- ------- ------- -------- -------
Operating expenses 6,122 107 170 -- -- (215) 6,184
Business segment operating
income (loss) 749 30 9 -- 16 (43) 761
Interest and other, net (467) (27) (9) 13 -- 35 (455)
Corporate expenses (47) -- -- -- -- -- (47)
------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes 235 3 -- 13 16 (8) 259
Income tax (provision)
benefit (62) -- -- -- -- 3 (59)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
extraordinary item $ 173 $ 3 $ -- $ 13 $ 16 $ (5) $ 200
======= ======= ======= ======= ======= ======= =======
- --------------
*Includes depreciation and
amortization expense of: $ 780 $ 26 $ 36 $ -- $ -- $ (34) $ 808
======= ======= ======= ======= ======= ======= =======
See accompanying notes.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TIME WARNER ENTERTAINMENT GROUP
PRO FORMA CONSOLIDATED CONDENSED STATEMENT OF OPERATIONS
Year Ended December 31, 1994
(millions, unaudited)
Entertain- TWE-A/N Consolidation 1995 Debt TWI-TWE Asset Sale Entertain-
ment Group Trans- of Refinan- Management Trans- ment Group
Historical action(b) Paragon(c) cings(d) Fees(e) actions(f) Pro 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 to record the Asset Sale Transactions
as of September 30, 1995 reflect (1) the receipt by TWE of
approximately $178 million of aggregate gross proceeds with
respect to the sale by TWE of certain unclustered cable
television systems which have not closed as of September 30,
1995, (2) a reduction in debt of $125 million, resulting
from the use of the aggregate net proceeds received from the
Unclustered Cable Disposition, after related taxes, 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 September 30, 1995 and (4) the
payment of $53 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
the Unclustered Cable Disposition in accordance with the
terms of the TWE partnership agreement.The effects of the
Six Flags Transaction and the sale by TWE of certain
unclustered cable systems during the second and third
quarters of 1995 are already reflected in the historical
balance sheet of the Entertainment Group as of September 30,
1995.
(b) 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 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.
(c) Pro forma adjustments reflect the consolidation of Paragon's
operating results as a result of TWE's control over the
management of such entity for the six month period prior to
TWE's consolidation of Paragon effective as of July 6, 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.
(d) Pro forma adjustments to record the 1995 Debt Refinancings
for the nine months ended September 30, 1995 and the year
ended December 31, 1994 reflect lower interest costs of $13
million and $23 million, respectively, from (i) $2.716
billion of aggregate borrowings under the New Credit
Agreement, which were used to refinance $2.677 billion of
indebtedness (plus $39 million of related financing costs)
and (ii) the repayment of $102 million of Paragon's
indebtedness funded by Time Warner, as set forth on the
following page (in millions).
All pro forma adjustments to record the 1995 Debt
Refinancings for the nine months ended September 30, 1995
reflect the incremental effect on Time Warner's operating
results from each refinancing that had closed during the
period.
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended Year Ended
September 30, 1995 December 31, 1994
------------------ -----------------
Increase (Decrease)
<S> <C> <C>
o Borrowings by TWE and the TWE-Advance/Newhouse
Partnership in the amounts of $2.702 billion and
$14 million, respectively, under the New Credit
Agreement, at estimated annual interest rates for
each borrower of 6.5% for the nine months ended
September 30, 1995 and 5% for the year ended
December 31, 1994 $ 88 $ 136
o Repayment by TWE of $2.575 billion of indebtedness
under the pre-existing TWE bank credit agreement (84) (124)
o Repayment of $226 million of Paragon's indebtedness
of which $102 million was funded by each of TWE and
Time Warner, and the remainder was funded by
Paragon's available cash and equivalents (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 $ (13) $ (23)
===== =====
</TABLE>
(e) Pro forma adjustments for the nine months ended September
30, 1995 and the year ended December 31, 1994 reflect fees
to be received from Time Warner in the amount of $16 million
and $25 million, respectively, with respect to TWE's
management of certain of Time Warner's cable television
systems.
(f) Pro forma adjustments to record decreases of $5 million and
$23 million in net income, respectively, from the Asset Sale
Transactions for the nine months ended September 30, 1995
and the year ended December 31, 1994 reflect (1) the
deconsolidation of the operating results of Six Flags for
the periods prior to the consummation of the Six Flags
Transaction in June 1995, (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 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 Unclustered Cable Disposition that
have not closed as of September 30, 1995 has not been
reflected in the pro forma consolidated condensed statements
of operations of the Entertainment Group included herein.
<PAGE>
(b) Financial statements of businesses acquired:
(i) Unaudited Consolidated Financial Statements of
Cablevision Industries Corporation and Subsidiaries as of
September 30, 1995 and for nine months ended September 30,
1995;
(ii) Unaudited Combined Financial Statements of
Cablevision Industries Limited Partnership and Combined
Entities as of September 30, 1995 and for nine months ended
September 30, 1995; and
(iii) Unaudited Consolidated Combined Financial
Statements of Turner Broadcasting System, Inc. as of
September 30, 1995 and for nine months ended September 30,
1995.
(c) Pro Forma Consolidated Condensed Financial Statements:
(i) Time Warner Inc.:
(A) Pro Forma Consolidated Condensed Balance Sheet
as of September 30, 1995;
(B) Pro Forma Consolidated Condensed Statements of
Operations for the nine months ended September 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 September 30, 1995;
(B) Pro Forma Consolidated Condensed Statements of
Operations for the nine months ended September 30, 1995
and the year ended December 31, 1994; and
(C) Notes to Pro Forma Consolidated Condensed
Financial Statements.
(d) Exhibits
(i) Exhibit 99(a): Unaudited Consolidated Financial
Statements of Cablevision Industries Corporation and
Subsidiaries as of September 30, 1995 and for the nine
months ended September 30, 1995 (incorporated by reference
from page 2 to 11 of the Quarterly Report on Form 10-Q for the
quarterly period ended September 30, 1995 of Cablevision
Industries Corporation).
(ii) Exhibit 99(b): Unaudited Combined Financial
Statements of Cablevision Industries Limited Partnership and
Combined Entities as of September 30, 1995 and for the nine
months ended September 30, 1995.
(iii) Exhibit 99(c): Unaudited Consolidated Condensed
Financial Statements of Turner Broadcasting System, Inc. as
of September 30, 1995 and for the nine months ended
September 30, 1995 (incorporated by reference from page 2 to
9 of the Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1995 of Turner Broadcasting
System, Inc.).
(iv) Exhibit 8(a): Opinion of Cravath, Swaine & Moore
(delivered in connection with the Registration Statement
(Registration Nos. 33-61523, 33-61523-01, 33-61523-02 and
33-61523-03) relating to Preferred Trust Securities,
Subordinated Debentures and certain Guarantees).
<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 November 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
Exhibit No. Description of Exhibit Sequential
- ----------- ---------------------- Page Number
-----------
99(a) Unaudited Consolidated Financial *
Statements of Cablevision
Industries Corporation and
Subsidiaries as of September 30,
1995 and for the nine months ended
September 30, 1995 (incorporated by
reference from page 2 to 11 of the
Quarterly Report on Form 10-Q for
the quarterly period ended
September 30, 1995 of Cablevision
Industries Corporation).
99(b) Unaudited Combined Financial
Statements of Cablevision
Industries Limited Partnership and
Combined Entities as of September
30, 1995 and for the nine months
ended September 30, 1995.
99(c) Unaudited Consolidated Condensed *
Financial Statements of Turner
Broadcasting System, Inc. as of
September 30, 1995 and for the nine
months ended September 30, 1995
(incorporated by reference from
pages 2 to 9 of the Quarterly
Report on Form 10-Q for the
quarterly period ended September
30, 1995 of Turner Broadcasting
System, Inc.).
8(a) Opinion of Cravath, Swaine & Moore
(delivered in connection with the
Registration Statement
(Registration Nos. 33-61523,
33-61523-01, 33-61523-02 and
33-61523-03) relating to Preferred
Trust Securities, Subordinated
Debentures and certain Guarantees).
- ------------------------
* Incorporated by reference.
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
Financial Statements
Third Quarter, 1995
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED STATEMENTS OF OPERATIONS
(All dollar amounts in 000's)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, 1995 September 30, 1995
------------------ ------------------
REVENUES $ 22,499 $ 67,062
-------- ---------
COSTS AND EXPENSES:
Service costs 7,024 20,933
Selling, general and
administrative expenses 3,947 11,584
-------- ---------
Operating cash flow 11,528 34,545
MANAGEMENT FEE EXPENSE 1,125 3,353
-------- ---------
Operating income 10,403 31,192
-------- ---------
INTEREST EXPENSE:
Bank debt, net 3,941 11,685
Unsecured subordinated
debt and other 111 329
-------- ---------
4,052 12,014
DEPRECIATION AND AMORTIZATION 5,708 17,174
GAIN ON SALE OF ASSETS 0 (2,747)
-------- ---------
NET INCOME $ 643 $ 4,751
======== =========
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED BALANCE SHEETS
(All dollar amounts in 000's)
September 30, December 31,
ASSETS 1995 1994
------ ------------- ------------
(Unaudited)
Cash $ 11,988 $ 1,455
Subscriber receivables 2,789 2,854
Prepaid expenses & other assets 7,200 3,413
Investment in cable television systems:
Property, plant & equipment, at cost 183,858 176,915
Less - accumulated depreciation (122,234) (111,476)
--------- ----------
61,624 65,439
Franchising costs 16,928 20,250
Other intangible assets 11,690 13,130
--------- ---------
Total investment in cable television systems 90,242 98,819
--------- ---------
$ 112,219 $ 106,541
========= =========
LIABILITIES AND STOCKHOLDER'S AND PARTNERS' DEFICIT
- ---------------------------------------------------
LIABILITIES:
Senior bank debt $ 173,420 $ 173,420
Senior subordinated bank debt 52,348 53,690
Senior unsecured subordinated debt
- Series A Notes 890 564
Senior unsecured subordinated debt
- Series B Notes 5,000 5,000
Accounts payable & accrued expenses 13,518 14,288
Subscriber advance payments and deposits 2,330 2,970
Management fee payable 11,918 8,565
--------- ---------
Total liabilities 259,424 258,497
--------- ---------
STOCKHOLDER'S & PARTNERS' DEFICIT
Common stock 3 3
Additional paid-in capital 10,053 10,053
Accumulated deficit (12,621) (15,640)
Partners' deficit (144,640) (146,372)
--------- ---------
Total stockholder's and partners' deficit (147,205) (151,956)
--------- ---------
$ 112,219 $ 106,541
========= =========
<PAGE>
CABLEVISION INDUSTRIES LIMITED PARTNERSHIP
AND COMBINED ENTITIES
COMBINED STATEMENT OF CASH FLOWS
(All dollar amounts in 000's)
(Unaudited)
Nine Months Ended
September 30, 1995
------------------
CASH FLOWS FROM OPERATING ACTIVITIES: $ 4,751
Net income
Adjustments to reconcile net income to net
cash flows from operating activities:
Depreciation and amortization 17,174
Net increase in subscriber receivables,
prepaid expenses and other assets, accounts
payable and accrued expenses, subscriber
advance payments and deposits, and management
fee payable (1,779)
-------
Net cash flows from operating activities 20,146
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Increase in investment in property, plant and equipment (8,112)
Acquisition of cable television system (2,079)
Sale of cable television assets 1,682
-------
Net cash flows from investing activities (8,509)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Decrease in senior subordinated bank debt (1,342)
Increase in senior unsecured subordinated debt
- Series A Notes 326
Other (88)
-------
Net cash flows from financing activities (1,104)
-------
Net increase in cash 10,533
CASH, beginning of year 1,455
-------
CASH, end of period $11,988
=======
<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 3,019 1,732
---------- ---------
BALANCE, September 30, 1995 $ (12,621) $(144,640)
========== =========
[Letterhead of]
CRAVATH, SWAINE & MOORE
November 14, 1995
Time Warner Inc.
Time Warner Capital I
Time Warner Capital II
Time Warner Capital III
Preferred Trust Securities
Ladies and Gentlemen:
We have acted as counsel for Time Warner Inc., a
Delaware corporation (the "Company"), and Time Warner
Capital I, Time Warner Capital II and Time Warner Capital
III, each a statutory business trust created under the
Business Trust Act of the State of Delaware (collectively
the "Trusts"), in connection with the proposed issuance by
the Trusts of Preferred Trust Securities (the "Preferred
Securities") pursuant to the terms of the declarations of
trust of the Trusts, dated as of August 2, 1995, as proposed
to be amended and restated, among the Company, as sponsor,
the trustees named therein and the holders from time to time
of undivided beneficial interests in the assets of the
Trusts (the "Declarations"). The Preferred Securities will
be guaranteed by the Company on a subordinated basis with
respect to distributions and payments upon liquidation,
redemption or otherwise (the "Guarantee") pursuant to a
Guarantee Agreement to be dated as of the date of each
issuance of Preferred Securities (the "Guarantee
Agreement"), between the Company and The First National Bank
of Chicago, as Trustee (the "Guarantee Trustee"). The assets
of each Trust will consist of Subordinated Debentures of the
Company (the "Subordinated Debentures"), which will be
issued under an indenture dated as of the date of intial
issuance of Preferred Securities (the "Base Indenture"),
between the Company and Chemical Bank, as Trustee (the
"Indenture Trustee"), and supplemental indentures dated as
of the date of each issuance of Preferred Securities,
between the Company and the Indenture Trustee under the
<PAGE>
Indenture (the "Supplemental Indenture" and together with
the Base Indenture, the "Indenture").
In that connection, we have examined originals, or
copies certified or otherwise identified to our
satisfaction, of such documents, corporate records and other
instruments as we have deemed necessary or appropriate for
the purpose of this opinion, including (a) the Restated
Certificate of Incorporation of the Company; (b) the By-laws
of the Company; (c) the Registration Statement on Form S-3
(Registration Nos. 33-61523, 33-61523-01, 33-61523-02 and
33-61523-03) filed with the Securities and Exchange
Commission (the "Commission") on August 2, 1995, as amended,
(such Registration Statement, including all material
incorporated by reference therein, the "Registration
Statement"); (d) the Certificates of Trust of the Trusts
dated August 2, 1995, and filed with the Secretary of State
of the State of Delaware on August 2, 1995; (e) the
Declarations; (f) the form of the Amended and Restated
Declaration; (g) the form of the Indenture; (h) the form of
the Supplemental Indenture; (i) the form of Preferred
Security attached as Exhibit B to the form of Amended
Declaration and a specimen thereof; (j) the form of Common
Security attached as Exhibit C to the form of Amended
Declaration and a specimen thereof; (k) the form of
Guarantee Agreement; and (l) the form of Subordinated
Debentures attached as Exhibit A to the Indenture and a
specimen thereof.
Based on the foregoing, we are of opinion under
current law as follows:
1. Although not free from doubt, assuming full
compliance with the terms of the Indenture and all
other relevant documents, the Subordinated Debentures
held by the Trusts will be classified for United States
Federal income tax purposes as indebtedness of the
Company.
2. Assuming full compliance with the terms of the
Declarations, the Indenture and all other relevant
documents, the Trusts will be classified for United
States Federal income tax purposes as grantor trusts
and not as associations taxable as corporations.
3. The statements set forth in each of the
Prospectus Supplements to the Prospectus contained in
the Registration Statement under the caption "United
States Federal Income Taxation" accurately describe
the material United States Federal income tax
consequences
<PAGE>
to holders of the acquisition, holding and disposition
of the Preferred Securities.
We do not express any opinion as to any laws other
than the Federal income tax laws of the United States
of America.
We know that we may be referred to in the
Registration Statement, including the Prospectus and
each Prospectus Supplement thereto, and we hereby
consent to such use of our name therein, as well as to
the use of this letter as an exhibit to the
Registration Statement.
Very truly yours,
/s/ Cravath, Swaine & Moore
Time Warner Inc.
75 Rockefeller Plaza
New York, NY 10019
