-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, bN3AqNgjql+myLT/vUFBt/bcxB4J56MFjJVnntg0akCK3AewwwVdg7e2spIPbOtj o8SVvxFYFVJIw1W/4ETfmw== 0000950144-95-002242.txt : 19950814 0000950144-95-002242.hdr.sgml : 19950814 ACCESSION NUMBER: 0000950144-95-002242 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950811 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TURNER BROADCASTING SYSTEM INC CENTRAL INDEX KEY: 0000100240 STANDARD INDUSTRIAL CLASSIFICATION: TELEVISION BROADCASTING STATIONS [4833] IRS NUMBER: 580950695 STATE OF INCORPORATION: GA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08911 FILM NUMBER: 95561874 BUSINESS ADDRESS: STREET 1: ONE CNN CENTER STREET 2: 100 INTERNATIONAL BLVD CITY: ATLANTA STATE: GA ZIP: 30303 BUSINESS PHONE: 4048271700 MAIL ADDRESS: STREET 1: P O BOX 105366 CITY: ATLANTA STATE: GA ZIP: 30348-5366 FORMER COMPANY: FORMER CONFORMED NAME: TURNER COMMUNICATIONS CORP DATE OF NAME CHANGE: 19791016 FORMER COMPANY: FORMER CONFORMED NAME: RICE BROADCASTING CO INC DATE OF NAME CHANGE: 19700909 10-Q 1 FORM 10-Q OF TURNER BROADCASTING SYSTEM, INC. 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to -------------- -------------- Commission File No. 1-8911 TURNER BROADCASTING SYSTEM, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-0950695 - ------------------------------- ----------------------------------- (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) One CNN Center Atlanta, Georgia 30303 - ------------------------------- ----------------------------------- (Address of principal (Zip Code) executive offices) (404) 827-1700 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes X No ------- ------- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Outstanding at Class June 30, 1995 - ------------------------- -------------------------------------- Class A Common Stock, par value $0.0625 68,330,388 Class B Common Stock, par value $0.0625 137,667,381 2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TURNER BROADCASTING SYSTEM, INC. CONSOLIDATED CONDENSED BALANCE SHEETS UNAUDITED (IN THOUSANDS)
JUNE 30, DECEMBER 31, 1995 1994 ---------------- ----------------- ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 68,808 $ 52,895 Accounts receivable, less allowance of $34,592 and $31,862 Unaffiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . 312,783 567,404 Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,416 103,432 Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 462,169 446,355 Installment contracts receivable, less allowance of $12,723 and $10,661 . . . . . . . . . . . . . . . . . . . 44,338 46,806 Prepaid expense and other current assets . . . . . . . . . . . . . . . . . 89,693 71,510 --------------- -------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,041,207 1,288,402 Film costs, less current portion . . . . . . . . . . . . . . . . . . . . . 1,908,936 1,893,069 Property and equipment, less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 324,210 308,960 Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . 429,762 409,468 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 162,590 172,646 --------------- -------------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,866,705 $ 4,072,545 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 37,338 $ 49,036 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 215,803 249,813 Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111,930 108,122 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,940 61,376 Participants' share and royalties payable . . . . . . . . . . . . . . . . . 61,721 58,417 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,638 37,338 Film contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 53,885 40,252 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 1,476 1,345 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 43,022 40,702 --------------- -------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . 622,753 646,401 Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . 2,286,556 2,517,748 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 396,410 385,731 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 178,520 178,934 --------------- -------------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 3,484,239 3,728,814 TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 382,466 343,731 --------------- -------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 3,866,705 $ 4,072,545 =============== ===============
See accompanying Notes to Consolidated Condensed Financial Statements. 2 3 TURNER BROADCASTING SYSTEM, INC. CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS UNAUDITED (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS SIX MONTHS ENDED ENDED JUNE 30, JUNE 30, ------------------------------- ------------------------------ 1995 1994 1995 1994 -------------- -------------- -------------- -------------- Revenue Unaffiliated . . . . . . . . . . . . . . . . . . . . . $ 694,634 $ 579,640 $ 1,278,485 $ 1,048,744 Affiliated . . . . . . . . . . . . . . . . . . . . . . 103,252 98,007 229,716 196,207 -------------- -------------- -------------- -------------- 797,886 677,647 1,508,201 1,244,951 -------------- -------------- -------------- -------------- Cost of operations . . . . . . . . . . . . . . . . . . . . 480,978 432,975 884,720 800,088 Selling, general and administrative . . . . . . . . . . . . 206,864 175,815 403,040 331,446 Gain on sale of equity investment . . . . . . . . . . . . . - (21,746) - (21,746) Costs of accounts receivable securitization program . . . . . . . . . . . . . . . . 3,258 - 3,258 - Depreciation of property and equipment and amortization of goodwill and other intangible assets . . . . . . . . . . . . . . . . . . 20,457 14,815 36,834 27,109 Interest expense, net of interest income . . . . . . . . . 46,576 53,633 97,284 105,376 Equity in loss of unconsolidated entities . . . . . . . . . 2,668 1,546 7,737 3,863 -------------- -------------- -------------- -------------- 760,801 657,038 1,432,873 1,246,136 -------------- -------------- -------------- -------------- Income (loss) before provision (benefit)for income taxes . . . . . . . . . . . 37,085 20,609 75,328 (1,185) Provision (benefit) for income taxes . . . . . . . . . . . 15,385 7,690 31,638 (480) -------------- -------------- -------------- ------------- Net income (loss) . . . . . . . . . . . . . . . . . $ 21,700 $ 12,919 $ 43,690 $ (705) ============== ============== ============== ============= Earnings (loss) per common share and common stock equivalent Net income (loss) . . . . . . . . . . . . . . $ 0.08 $ 0.05 $ 0.15 $ 0.00 ============== ============== ============== ============= Weighted average number of common shares outstanding, including conversion of common stock equivalents, when applicable . . . . . . . . . . . . . . . . . . . 283,030 282,626 282,688 202,847
See accompanying Notes to Consolidated Condensed Financial Statements. 3 4 TURNER BROADCASTING SYSTEM, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS UNAUDITED (IN THOUSANDS)
SIX MONTHS ENDED JUNE 30, -------------------------------- 1995 1994 ------------- ------------- Cash provided by operations before changes in film costs and liabilities, net . . . . . . . . . . . . . . . . . . . . . $ 343,613 $ 30,527 Changes in film costs and liabilities, net Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . . . 45,328 40,390 Produced programming . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,505) (36,412) Licensed program and distribution rights . . . . . . . . . . . . . . . . . (9,772) (366) ------------ ------------ Net cash provided by operations . . . . . . . . . . . . . . . . . . . . . . . . . 314,664 34,139 ------------ ------------ Cash provided by (used for) investing activities Sale of equity investment . . . . . . . . . . . . . . . . . . . . . . . . . - 107,978 Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . 6,180 - Acquisitions and advances to unconsolidated entities . . . . . . . . . . . . (7,051) (144,882) Additions to property and equipment . . . . . . . . . . . . . . . . . . . . (50,245) (55,578) ------------- ------------ Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (51,116) (92,482) ------------- ------------ Cash provided by (used for) financing activities Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,000 599,610 Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (255,224) (575,623) Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (9,809) (4,901) Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . 2,398 868 ------------ ------------ Net cash provided by (used for) financing activities . . . . . . . . . . . . . . (247,635) 19,954 ------------- ------------ Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . 15,913 (38,389) Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 52,895 162,858 ------------ ------------ Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 68,808 $ 124,469 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 49,809 $ 13,506 Net interest paid, including interest capitalized of $8,503 and $6,914 . . . . . . . . . . . . . . . . . . . . . . 98,338 80,389 Dividends declared but unpaid . . . . . . . . . . . . . . . . . . . . . . . . . . - 4,901 On January 28, 1994, the Company completed the merger with New Line Cinema Corporation as follows: Fair value of assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . $ 695,400 Less: common stock issued or issuable . . . . . . . . . . . . . . . . . . . . . . 406,700 cash paid for debt and other acquisition costs . . . . . . . . . . . . . . 139,600 ------------ Liabilities assumed, including Convertible Debentures . . . . . . . . . . . . . . $ 149,100 ============
See accompanying Notes to Consolidated Condensed Financial Statements. 4 5 TURNER BROADCASTING SYSTEM, INC. NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS UNAUDITED NOTE 1. PREPARATION OF INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS The consolidated condensed financial statements included herein have been prepared by Turner Broadcasting System, Inc. (the "Company") pursuant to the rules and regulations of the Securities and Exchange Commission. In the opinion of management, the accompanying consolidated condensed financial statements contain all adjustments, which are of a normal recurring nature, necessary for a fair presentation of such financial statements. Although certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, management believes that the disclosures are adequate to make the information presented not misleading. For further information, reference is made to the consolidated financial statements and the notes thereto incorporated by reference in the Company's Form 10-K for the year ended December 31, 1994. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2. FILM COSTS The following table sets forth the components of unamortized film costs (in thousands):
June 30, December 31, 1995 1994 ----------------- ----------------- Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . $ 1,057,249 $ 1,102,563 Produced programming Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,393 302,559 Completed and not released . . . . . . . . . . . . . . . . . . . . . 50,805 40,021 In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 401,700 405,255 Episodic television . . . . . . . . . . . . . . . . . . . . . . . . 115,167 107,543 Licensed program and distribution rights . . . . . . . . . . . . . . . 277,888 257,796 Prepaid licensed program rights . . . . . . . . . . . . . . . . . . . 119,903 123,687 ----------------- ----------------- 2,371,105 2,339,424 Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 462,169 446,355 ----------------- ----------------- $ 1,908,936 $ 1,893,069 ================= =================
Episodic television includes serial television program costs. Prepaid licensed program rights represent licensed program rights for which payments have been made but the programming is not currently available for use. As these programs become available for use they are reclassified to licensed program rights. On the basis of the Company's anticipated total gross revenue estimates, over 87% of released and episodic television produced programming costs at June 30, 1995 will be amortized within the three-year period ending June 30, 1998. Amortization of film costs included in Cost of Operations is composed of the following (in thousands):
Three months ended Six months ended June 30, June 30, ----------------------------- ---------------------------- 1995 1994 1995 1994 ------------ ------------ ------------ -------------- Purchased program rights . . . . . . . . . . . . . . . $ 22,583 $ 21,962 $ 44,946 $ 44,339 Produced programming . . . . . . . . . . . . . . . . . 219,419 209,945 380,804 375,757 Licensed program and distribution rights . . . . . . . . . . . . . . . . . . . . . . 23,440 19,468 50,520 39,181 Participants' share and royalties . . . . . . . . . . . 19,330 8,060 37,440 23,399 Non-cash amortization of certain acquisition purchase adjustments . . . . . . . . . 499 794 3,292 1,758 ------------ ------------ ----------- ------------- $ 285,271 $ 260,229 $ 517,002 $ 484,434 ============ ============ =========== =============
5 6 NOTE 3. EARNINGS (LOSS) PER COMMON SHARE AND COMMON STOCK EQUIVALENT Net income (loss) per common share and common stock equivalent is computed by dividing net income (loss) applicable to common stock by the weighted average number of outstanding shares of common stock and common stock equivalents, when dilutive, during the applicable periods in 1995 and 1994. Common stock equivalents are principally the incremental shares associated with the Class C Convertible Preferred Stock (the "Class C Preferred Stock") and the outstanding stock options. For the six months ended June 30, 1994, no common stock equivalents are included in the calculation of primary earnings per share, due to their anti-dilutive effect. Fully-diluted income (loss) per share amounts are similarly computed, but include the effect, when dilutive, of the Company's other potentially dilutive securities. The Company's zero coupon subordinated convertible notes and the convertible subordinated debentures of a wholly-owned subsidiary are excluded from the fully-diluted calculations of net income (loss) per common share for the three-month and six-month periods ended June 30, 1995, and 1994 due to their anti-dilutive effect. The difference between the primary and fully-diluted earnings per share is not significant. NOTE 4. LONG-TERM DEBT Long-term debt is summarized as follows (in thousands):
JUNE 30, DECEMBER 31, 1995 1994 ---------------- -------------- Bank credit facilities . . . . . . . . . . . . . . . . . . . . $ 1,250,000 $ 1,490,000 8 3/8% Senior Notes . . . . . . . . . . . . . . . . . . . . . 297,411 297,381 7.4% Senior Notes . . . . . . . . . . . . . . . . . . . . . . 249,652 249,637 8.4% Senior Debentures . . . . . . . . . . . . . . . . . . . . 199,846 199,845 Zero coupon subordinated convertible notes . . . . . . . . . . 254,469 245,569 Convertible subordinated debentures of a wholly-owned subsidiary . . . . . . . . . . . . . . . . . . 29,075 29,075 Obligations under capital leases . . . . . . . . . . . . . . . 6,215 6,200 Other long-term debt . . . . . . . . . . . . . . . . . . . . . 1,364 1,386 ---------------- -------------- 2,288,032 2,519,093 Less current portion . . . . . . . . . . . . . . . . . . . . . 1,476 1,345 ---------------- -------------- $ 2,286,556 $ 2,517,748 ================ ==============
6 7 NOTE 5. STOCKHOLDERS' EQUITY Stockholders' equity consists of the following components (in thousands, except share data):
JUNE 30, DECEMBER 31, 1995 1994 --------------- --------------- Class C Convertible Preferred Stock, par value $0.125; authorized 12,600,000 shares; issued and outstanding 12,396,976 shares . . . . . . . . . . $ 260,438 $ 260,438 Class A Common Stock, par value $0.0625; authorized 75,000,000 shares; issued and outstanding 68,330,388 shares . . . . . . . . . . . . . . . . 4,271 4,271 Class B Common Stock, par value $0.0625; authorized 300,000,000 shares; issued and outstanding 137,667,381 and 137,424,549 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,604 8,589 Capital in excess of par value . . . . . . . . . . . . . . . . 1,078,156 1,073,317 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (969,003) (1,002,884) --------------- --------------- Total stockholders' equity . . . . . . . . . . . . . . . . $ 382,466 $ 343,731 =============== ===============
On March 1, 1995, and June 1, 1995, the Board of Directors declared a cash dividend on the Company's outstanding shares of Class A Common Stock and Class B Common Stock, payable at the rate of $0.0175 for each share held on the record date. In addition, holders of the Company's outstanding Class C Preferred Stock were entitled to an equivalent cash dividend of $0.105 for each share held on the record date based on the number of shares of Class B Common Stock which would be issued upon conversion of each share of Class C Preferred Stock. Cash dividends of $4,902,000 and $4,907,000 were paid on March 30, 1995 and June 30, 1995, respectively, to shareholders of record at the close of business on March 15, 1995 and June 15, 1995, respectively. The Company's ability to pay cash dividends to holders of shares of the Class A and Class B Common Stock and the Class C Preferred Stock is subject to certain covenants in the Company's outstanding debt instruments. Currently, the most restrictive of such covenants limits the maximum aggregate amount of dividends permitted to be paid annually to such holders to $30,000,000. NOTE 6. ACQUISITION The Company and New Line Cinema Corporation ("New Line"), a motion picture production and distribution company, completed a merger of New Line with a wholly-owned subsidiary of the Company on January 28, 1994 (the "Merger"). As a result of the Merger, each share of New Line Common Stock has been converted into the right to receive 0.96386 of a share of the Company's Class B Common Stock. The valuations used by New Line and the Company for purposes of arriving at the exchange ratio were $20 per share of New Line Common Stock and $20.75 per share of the Company's Class B Common Stock. The maximum number of shares of Class B Common Stock issuable pursuant to the Merger is approximately 21,300,000 shares, valued at approximately $442,000,000. Cash will be distributed in lieu of any fractional shares. At June 30, 1995 approximately 16,500,000 shares of the Company's Class B Common Stock had been issued in connection with the Merger. The remaining shares are issuable upon the exercise of New Line stock options and warrants and the conversion of the New Line convertible subordinated debentures discussed below. Additionally, the Company assumed and incurred liabilities of approximately $149,100,000 and paid debt and certain other 7 8 acquisition costs of approximately $140,000,000 in connection with the Merger. Among the liabilities assumed in the Merger were $29,125,000 of New Line 6 1/2% convertible subordinated debentures (the "Convertible Debentures"). The Convertible Debentures are convertible at the option of the holders into an aggregate of approximately 1,700,000 shares of Class B Common Stock. The Merger was accounted for by the purchase method of accounting. Goodwill and other intangible assets in the amount of approximately $330,000,000 were recognized in the transaction, and are being amortized using a straight-line basis over periods not to exceed 40 years. The pro forma effect of the Merger for the six months ended June 30, 1994 is not significant. NOTE 7. ACCOUNTS RECEIVABLE SECURITIZATION PROGRAM In May 1995, the Company entered into an agreement with a financial institution whereby the Company can sell on an ongoing basis up to $300,000,000 of an undivided percentage ownership interest in a designated pool of domestic cable and advertising accounts receivable. The initial sale generated proceeds of approximately $236,000,000 that were used to repay amounts outstanding under the Company's unsecured revolving credit facilities. As collections reduce the accounts receivable balance in the pool, the Company may sell participating interests in new receivables up to the maximum allowable under the program. The sales of accounts receivable under this program have reduced the accounts receivable balance in the consolidated condensed balance sheet and the proceeds have been included as a source of cash provided by operations in the consolidated condensed statement of cash flows. Under the terms of the agreement, the difference between the cash proceeds and the undivided percentage ownership interest sold in the designated pool of domestic cable and advertising accounts receivable consists of receivables that have been designated as reserves principally for any potential credit costs that may be incurred under the program. However, these costs are not expected to exceed the full amount of the allowance for doubtful accounts which has been retained in the consolidated condensed balance sheet of the Company, as the Company expects to experience substantially the same risk of credit loss as if the receivables had not been sold. The ongoing costs of the program are largely based on the purchaser's level of investment and cost of funds. The costs of the program are anticipated to be less than those the Company would have otherwise incurred under the Company's unsecured revolving credit facilities. Under the agreement, which expires in May 1996, the Company performs collection and administrative responsibilities related to the receivables sold as agent for the purchaser. As of June 30, 1995, the Company had sold an undivided interest in this designated pool of domestic cable and advertising accounts receivable that aggregated $300,000,000. The estimated total cost of the program for the sale of accounts receivable during the quarter ended June 30, 1995, approximated $3,000,000 and is reflected as a reduction of operating profit in the consolidated condensed statements of operations. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES OF CASH Cash provided by operations after changes in film costs and associated liabilities for the six months ended June 30, 1995 aggregated $315 million, including cash interest payments, net of cash interest received, of $98 million and a net change in film costs and liabilities of $29 million. Also included in cash provided by operations was $236 million which represents the initial proceeds from the accounts receivable securitization program discussed below. Other primary uses of cash during the period included repayments of amounts outstanding under the unsecured revolving credit facilities of $255 million and additions to property and equipment of $50 million. Included in the net change in film costs were $328 million utilized by the Company for original entertainment and sports programming (including $178 million for theatrical film productions, excluding promotional and advertising costs). In May 1995, the Company entered into an agreement with a financial institution whereby the Company can sell on an ongoing basis up to $300 million of an undivided percentage ownership interest in a designated pool of domestic cable and advertising accounts receivable. As of June 30, 1995, the Company had sold an undivided interest in this designated pool of its domestic cable and advertising accounts receivable that aggregated $300 million. The initial proceeds from the sale, $236 million, were used to repay amounts outstanding under the Company's unsecured revolving credit facilities. The Company has recognized costs of $3 million in connection with this accounts receivable securitization program. The ongoing costs of the program are anticipated to be less than those the Company would have otherwise incurred under the bank credit facilities. See Note 7 of Notes to Consolidated Condensed Financial Statements. See the Consolidated Condensed Statements of Cash Flows for additional details regarding sources and uses of cash and Notes 4 and 7 of Notes to Consolidated Condensed Financial Statements for additional information about the Company's indebtedness and the accounts receivable securitization program. CREDIT FACILITIES AND FINANCING ACTIVITIES The Company had approximately $2.3 billion of outstanding indebtedness at June 30, 1995, of which $1.3 billion was outstanding under unsecured revolving credit facilities with banks. CAPITAL RESOURCES AND COMMITMENTS During the next 12 months, the Company anticipates making cash expenditures of approximately $294 million for sports programming, primarily rights fees, approximately $974 million for original entertainment programming (excluding promotional and advertising costs) and approximately $144 million for licensed programming. Also, during the next 12 months, the Company expects to make total expenditures of approximately $117 million for additional or 9 10 replacement property and equipment. Of the anticipated programming and capital expenditures described above, firm commitments exist for approximately $611 million. Other capital resource commitments consist primarily of lease obligations, some of which are contingent on revenues derived from usage. Management expects to continue to lease satellite facilities, sports facilities and office facilities not already owned by the Company. Management expects to finance these commitments from working capital provided by operations and financing arrangements with lessors, vendors and film suppliers and additional borrowings. RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 1995 VS. THREE MONTHS ENDED JUNE 30, 1994
UNAUDITED UNAUDITED THREE MONTHS ENDED THREE MONTHS ENDED JUNE 30, 1995 JUNE 30, 1994 ------------- ------------- (IN THOUSANDS) Revenue Entertainment Networks $ 309,455 $ 265,286 Production & Distribution 257,737 208,661 Intrasegment revenue elimination (12,392) (15,346) -------------- -------------- Total Entertainment 554,800 458,601 News 196,901 163,168 Other 54,712 67,118 Intersegment revenue elimination (8,527) (11,240) -------------- -------------- $ 797,886 $ 677,647 ============== ============== Operating profit (loss) Entertainment Networks $ 64,952 $ 34,751 Production & Distribution (25,379) (31,107) Intrasegment elimination 5,212 4,684 -------------- -------------- Total Entertainment 44,785 8,328 News 70,208 54,756 Other (25,406) (9,042) Costs of accounts receivable securitization program (3,258) - Gain on sale of equity investment - 21,746 Equity in loss of unconsolidated entities (2,668) (1,546) -------------- -------------- $ 83,661 $ 74,242 ============== ==============
ENTERTAINMENT SEGMENT Entertainment Segment revenue increased $96 million, or 21%, from $459 million to $555 million. In the networks, advertising revenue increased $27 million, or 14%, due to an increase in the amount charged per thousand homes and higher viewership, while subscription revenue increased $20 million, or 30%, due to higher rates and an increase in subscribers. The Company's production and distribution companies contributed the remaining revenue increase, primarily through favorable box office results for theatrical film releases, which 10 11 increased $31 million, or 87%, and domestic and international syndication revenues, which increased $16 million, or 35%. Operating profit for the Entertainment Segment increased $36 million over the second quarter of 1994, $24 million of which related to losses associated with the Goodwill Games. Of the remaining increase in operating profit, $10 million was due to increased entertainment network revenues, offset primarily by increased sports programming costs relating to NBA telecasts. The production and distribution companies accounted for the remaining increase, principally due to favorable results from theatrical film releases and syndication revenue, as noted above. NEWS SEGMENT News Segment revenue rose $34 million, or 21%, from $163 million to $197 million. The increase was due primarily to a $16 million, or 22%, increase in domestic advertising revenue associated with higher viewership levels, and a $7 million, or 13%, increase in domestic subscription revenue due primarily to higher rates and an increase in subscribers. The remaining increase in overall revenue was generated by CNN International, where second quarter revenue rose $7 million, or 25%, from $28 million to $35 million. As a result of the revenue advances which outpaced cost increases, operating profit for the News Segment increased $15 million, or 28%. OTHER SEGMENT Revenue for the segment decreased $12 million, or 18%, from $67 million to $55 million. The Atlanta Braves played 18 fewer games in the second quarter of 1995 versus the same quarter last year as a result of the strike-shortened season, which accounted for the majority of the revenue decrease. Overall, operating losses for the segment rose $16 million, $10 million of which related to the results of the Braves, with the remainder due primarily to increases in general corporate costs, in line with overall Company growth. The strike and abbreviated season are not expected to have a significant continuing impact on the Company's operating results in 1995. EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION Operating losses increased $1 million due primarily to a decrease in Hawks' ticket revenue associated with participation in fewer playoff games and lower regular-season attendance levels in comparison to the prior year. The collective bargaining agreement between the National Basketball Association ("NBA"), of which the Atlanta Hawks are a member, and the National Basketball Players' Association ("NBPA"), of which the Atlanta Hawks players are members, expired at the conclusion of the 1993-1994 season. For the 1994-1995 NBA season, the NBA and NBPA operated under a one-year extension of the collective bargaining agreement. At the conclusion of the 1994-1995 season, a tentative agreement was reached between the NBA and negotiators from the NBPA. The NBA owners unanimously ratified the agreement, however, certain NBPA members dissatisfied with the proposed agreement petitioned successfully for a decertification election to the National Labor Relations Board ("NLRB"), which will hold a secret ballot vote on August 30 and September 7, 1995. On August 8, 1995, negotiators 11 12 from the NBPA and NBA reached a new tentative agreement which must be ratified by the NBA's Board of Governors and the players. The decertification election will now serve as a referendum on the August 8th agreement. The NBA remains in a lockout situation until such ratification. Any delay in or cancellation of the season resulting from the lockout is not expected to have a significant impact on the operations of the Company. In June 1994, the Company sold its equity interest in RHI Entertainment for approximately $108 million in cash and recognized a pre-tax gain of approximately $22 million. Consolidated depreciation and amortization increased approximately $6 million as a result of increased levels of property and equipment required to support the Company's growth. As a result of the information discussed above, the Company reported net income of $22 million in the second quarter of 1995 ($0.08 net income per common share and common share equivalent). This compares to a net income of $13 million in the second quarter of 1994 ($0.05 net income per common share and common share equivalent). 12 13 RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1995 VS. SIX MONTHS ENDED JUNE 30, 1994
UNAUDITED UNAUDITED SIX MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1995 JUNE 30, 1994 ------------- ------------- (IN THOUSANDS) Revenue Entertainment Networks $ 552,251 $ 462,723 Production & Distribution 544,383 419,511 Intrasegment revenue elimination (44,215) (30,214) -------------- -------------- Total Entertainment 1,052,419 852,020 News 379,979 313,956 Other 88,475 93,110 Intersegment revenue elimination (12,672) (14,135) -------------- -------------- $ 1,508,201 $ 1,244,951 ============== ============== Operating profit (loss) Entertainment Networks $ 108,104 $ 33,657 Production & Distribution (12,590) (34,273) Intrasegment elimination (3,370) 8,754 -------------- -------------- Total Entertainment 92,144 8,138 News 137,631 103,953 Other (46,168) (25,783) Costs of accounts receivable securitization program (3,258) - Gain on sale of equity investment - 21,746 Equity in loss of unconsolidated entities (7,737) (3,863) -------------- -------------- $ 172,612 $ 104,191 ============== ==============
ENTERTAINMENT SEGMENT Entertainment Segment revenue increased $200 million, or 24%, from $852 million to $1.05 billion. Network advertising revenue increased $46 million, or 15%, to $360 million, due to an increase in the amount charged per thousand homes and higher viewership. Subscription revenue also increased, rising $40 million, or 31%, to $170 million, due to higher rates and an increase in subscribers. The Company's production and distribution companies contributed revenue increases, primarily through favorable box office results for theatrical film releases, which increased $49 million, or 69%, to $120 million. Improved home video distribution, which increased $43 million, or $27%, to $204 million, and domestic and international syndication revenue which increased $13 million, or 11%, to $135 million, also came principally from the production and distribution companies, and is primarily associated with recent theatrical film productions. Operating profit for the Entertainment Segment increased $84 million over the first six months of 1994, from $8 million to $92 million, $28 million of which related to losses associated with the Goodwill Games. Additionally, increased operating profits from the entertainment networks of $49 million were primarily due to reduced sports programming costs as compared to the same period in the previous year when the 1994 Winter Olympics were telecast, as well as the 13 14 advertising and subscription revenue advances mentioned above. The remaining increase of $7 million in operating profits relates to improved results from the production and distribution companies primarily due to favorable results from theatrical film releases, and home video and syndication, as noted above. NEWS SEGMENT News Segment revenue rose $66 million, or 21%, from $314 million to $380 million. The increase was due primarily to a $34 million, or 25%, increase in domestic advertising revenue associated with higher viewership levels, and a $13 million, or 12%, increase in domestic subscription revenue due primarily to higher rates and an increase in subscribers. The remaining increase in overall revenue was primarily generated by CNN International, where revenue rose $15 million, or 30%, from $50 million to $65 million. As a result of the revenue advances which outpaced costs increases, operating profit for the News Segment increased $34 million, or 32%. OTHER SEGMENT Revenue for the segment decreased $5 million, or 5%, from $93 million to $88 million. The Atlanta Braves played 18 fewer games in the first half of 1995 versus the same period in the prior year as a result of the strike-shortened season, contributing to a decrease in revenue of $16 million which was offset by increased revenues at World Championship Wrestling, associated primarily with pay-per-view events. Overall, operating losses for the segment increased $20 million, $10 million of which related to the results of the Braves, with the remainder due primarily to increases in general corporate costs, in line with overall Company growth. The strike and abbreviated season are not expected to have a significant continuing impact on the Company's operating results in 1995. EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/OTHER CONSOLIDATED INFORMATION Operating losses increased $4 million due primarily to a decrease in Hawks' ticket revenue associated with participation in fewer playoff games and lower regular-season attendance levels in comparison to the prior year. The collective bargaining agreement between the NBA, of which the Atlanta Hawks are a member, and the NBPA, of which the Atlanta Hawks players are members, expired at the conclusion of the 1993-1994 season. For the 1994-1995 NBA season, the NBA and NBPA operated under a one-year extension of the collective bargaining agreement. At the conclusion of the 1994-1995 season, a tentative agreement was reached between the NBA and negotiators from the NBPA. The NBA owners unanimously ratified the agreement, however certain NBPA members dissatisfied with the proposed agreement petitioned successfully for a decertification election to the NLRB, which will hold a secret ballot vote on August 30 and September 7, 1995. On August 8, 1995, negotiators from the NBPA and NBA reached a new tentative agreement which must be ratified by the NBA's Board of Governors and the players. The decertification election will now serve as a referendum on the August 8th agreement. The NBA remains in a lockout situation until such ratification. Any delay in or cancellation of the season resulting from the lockout is not expected to have a material impact on the operations of the Company. 14 15 In June 1994, the Company sold its equity interest in RHI Entertainment for approximately $108 million in cash and recognized a pre-tax gain of approximately $22 million. Consolidated depreciation and amortization increased approximately $10 million as a result of increased levels of property and equipment required to support the Company's growth. As a result of the information discussed above, the Company reported net income of $44 million for the six months ended June 30, 1995 ($0.15 net income per common share and common share equivalent). This compares to a net loss of $1 million for the six months ended June 30, 1994 ($0.00 net loss per common share). 15 16 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Turner Broadcasting System, Inc. v. Federal Communications Commission and The United States of America As last updated in the Company's Form 10-K for the year ended December 31, 1994, on October 5, 1992, the Company filed a lawsuit in the United States District Court for the District of Columbia challenging the provisions of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Act") that would require cable television operators to devote up to one-third of their channel capacity to the carriage of local broadcast stations and provide certain channel positioning rights to local broadcast stations. The Company's complaint alleges that these provisions violate the First Amendment of the United States Constitution. Under a provision of the 1992 Act, the case was heard by a three-judge court. On April 8, 1993, the Court upheld the constitutionality of these provisions by a 2-1 vote. On June 27, 1994, the United States Supreme Court vacated the District Court's ruling and remanded the case for further proceedings. The Company is pursuing its claims. On July 17, 1995, the District Court heard oral arguments on cross-motions for summary judgment. 16 17 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The annual meeting of shareholders of the Company was held on June 9, 1995. At the annual meeting, the shareholders voted on the following matters: (i) the election of fifteen directors; (ii) a proposal to ratify the selection of Price Waterhouse LLP as the Company's independent accountants; (iii) a proposal to approve an amendment to the Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan; and (iv) a shareholder proposal concerning limiting the location of the annual meeting of shareholders to within the United States. The results of the votes were as follows: Proposal No. I - Election of Directors Election of Eight Common Stock Directors:
FOR VOTE WITHHELD --- ------------- R.E. Turner 153,081,754 votes 95,231 votes ------------- ------------- Henry L. Aaron 153,076,226 votes 100,759 votes ------------- ------------- W. Thomas Johnson 153,111,812 votes 95,173 votes ------------- ------------- Rubye M. Lucas 153,078,208 votes 98,787 votes ------------- ------------- Terence F. McGuirk 153,081,822 votes 95,163 votes ------------- ------------- Brian L. Roberts 153,080,944 votes 96,041 votes ------------- ------------- Scott M. Sassa 153,081,622 votes 95,363 votes ------------- ------------- Robert Shaye 153,081,822 votes 95,163 votes ------------- -------------
Election of Seven Class C Directors:
FOR VOTE WITHHELD --- ------------- Peter R. Barton 14,876,371 votes 0 votes -------------- -------------- Joseph J. Collins 14,876,371 votes 0 votes -------------- -------------- Michael J. Fuchs 14,876,371 votes 0 votes -------------- -------------- Gerald M. Levin 14,876,371 votes 0 votes -------------- -------------- John C. Malone 14,876,371 votes 0 votes -------------- -------------- Timothy P. Neher 14,876,371 votes 0 votes -------------- -------------- Fred A. Vierra 14,876,371 votes 0 votes -------------- --------------
Proposal No. II - Ratification of selection of Price Waterhouse LLP as the Company's independent accountants for the fiscal year ending December 31, 1995:
Class A Class B Class C Common Common Preferred Total Votes Votes Votes Votes ----------- ---------- ------------- ----- FOR: 130,063,086 23,076,263 14,876,371 168,015,720 ----------- ---------- ------------ ----------- AGAINST: 20,328 2,475 0 22,803 ----------- ---------- ------------ ----------- ABSTAIN: 12,166 2,667 0 14,833 ----------- ---------- ------------ -----------
17 18 Proposal No. III - Approval of amendment to the Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan to increase the number of shares of the Company's Class B Common Stock as to which stock options and other equity-based awards may be granted:
Class A Class B Class C Common Common Preferred Total Votes Votes Votes Votes ----------- ---------- ----------- ----------- FOR: 123,480,110 18,486,832 14,876,371 156,843,313 ----------- ---------- ----------- ----------- AGAINST: 1,805,862 3,528,930 0 5,334,792 ----------- ---------- ----------- ----------- ABSTAIN: 170,716 374,037 0 544,753 ----------- ---------- ----------- -----------
Proposal No. IV - Shareholder proposal concerning limiting the location of the annual meeting of shareholders to within the United States:
Class A Class B Class C Common Common Preferred Total Votes Votes Votes Votes ----------- ---------- ----------- ----------- FOR: 1,286,572 391,406 0 1,677,978 ----------- ---------- ----------- ----------- AGAINST: 123,828,090 21,659,545 14,876,371 160,364,006 ----------- ---------- ----------- ----------- ABSTAIN: 342,026 338,848 0 680,874 ----------- ---------- ----------- -----------
18 19 ITEM 5. OTHER INFORMATION REGULATION On October 5, 1992, the 1992 Act became law. The Federal Communications Commission (the "FCC" or the "Commission") is charged with implementation of the 1992 Act. RATE REGULATION Section 623 of the Communications Act of 1934, as amended by the 1992 Act, establishes a two-tier rate structure applicable to systems not found to be subject to "effective competition" as defined by the statute. Rates for a required "basic service tier" are subject to regulation by practically every community. Rates for cable programming services other than those carried on the basic tier are subject to regulation if, upon complaint, the FCC finds that such rates are "unreasonable." Programming offered by a cable operator on a per-channel or per-program basis, however, is exempt from rate regulation. On April 1, 1993, the FCC adopted implementing regulations for Section 623. The text of its Report and Order was released on May 3, 1993. The FCC adopted a benchmark approach to rate regulation. Rates above the benchmark would be presumed to be unreasonable. Once established, cable operators could adjust their rates based on appropriate factors and could pass through certain costs to customers, including increased programming costs. On February 22, 1994, the Commission adopted further regulations. Among other things, the additional regulations will govern the offering of bona fide "a la carte" channels that are exempted from rate regulation. The Commission also adopted a methodology for determining rates when channels are added to or deleted from regulated tiers. These regulations may adversely affect the Company's ability to sell its existing or new networks to cable customers and/or may adversely affect the prices the Company may charge for its services, although at this time the Company cannot predict their full effect on its operations. On April 5, 1993, the FCC also froze rates for cable services subject to regulation under the 1992 Act for 120 days. On June 11, 1993, the FCC deferred the implementation of rate regulation from June 21, 1993 until October 1, 1993, and extended the freeze on rates for cable services subject to regulation from August 4, 1993 to November 15, 1993. On November 10, 1993, the Commission further extended the freeze until February 15, 1994, and on February 8, 1994, extended the expiration date of the freeze until May 15, 1994. On July 27, 1993, the FCC moved the effective date of rate regulation back to September 1, 1993. Additionally, among other things, the FCC permitted cable operators to structure rates and service offerings up until September 1, 1993, without prior notice to subscribers. On June 5, 1995, the United States Court of Appeals for the District of Columbia upheld the FCC's implementing regulations against challenge on constitutional, statutory and administrative law grounds. On July 16, 1993, the FCC issued a Notice of Proposed Rulemaking to add the regulatory requirements to govern cost-of-service showings that cable operators 19 20 may submit under this provision to justify rates above the benchmarks. On February 22, 1994, the Commission adopted interim rules to govern the cost of service proceedings. The FCC on November 10, 1994 reversed its policy regarding rate regulation of packages of "a la carte" services. "A la carte" services that are offered in a package will now be subject to rate regulation by the FCC. In light of the uncertainty created by the various criteria that the FCC previously applied to "a la carte" packages, the FCC, in those cases in which it was not clear how the FCC's previous criteria should have been applied to the package at issue, and where only a "small number" of channels were moved from a previously regulated tier to the package, will allow cable operators to treat existing packages as New Product Tiers ("NPTs") as discussed below. The FCC, in addition to revising its rules governing "a la carte" channels, also on November 10, 1994 revised its regulations governing the manner in which cable operators may charge subscribers for new cable programming services. The FCC instituted a three-year flat fee mark-up plan for charges relating to new channels of cable programming services in addition to the present formula for calculating the permissible rate for new services. Commencing on January 1, 1995, operators may charge for new channels of cable programming services added after May 14, 1994 at a mark-up of 20 cents per channel over actual programming costs, but may not make adjustments to monthly rates for these new services totaling more than $1.20, plus an additional 30 cents solely for programming license fees, per subscriber over the first two years of the three-year period. Cable operators may charge an additional 20 cents in the third year only for channels added in that year. Cable operators electing to use the 20 cents per channel adjustment may not take a 7.5% mark-up on programming cost increases, which is permitted under the FCC's current rate regulations. The FCC requested further comment on whether cable operators should continue to receive the 7.5% mark-up on increases in license fees on existing programming services. Additionally, the FCC will permit cable operators to offer NPTs at rates which they elect so long as, among other conditions, other service tiers that are subject to rate regulation are priced in conformity with applicable FCC regulations and cable operators do not remove programming services from such existing tiers and offer them on the NPT. The constitutionality of these provisions has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld the constitutionality of these provisions. An appeal of that decision is pending in the U.S. Court of Appeals for the District of Columbia. The Company cannot predict the ultimate outcome of the litigation. 20 21 MUST CARRY AND RETRANSMISSION CONSENT The 1992 Act contains provisions that would require cable television operators to devote up to one-third of their channel capacity to the carriage of local broadcast stations and provide certain channel position rights to local broadcast stations. The 1992 Act also includes provisions governing retransmission of broadcast signals by cable systems, whereby retransmission of broadcast signals would require the broadcaster's consent and provides each local broadcaster the right to make an election between must carry or retransmission consent. The retransmission consent provisions of the 1992 Act became effective on October 5, 1993. On March 11, 1993, the FCC adopted a Report and Order implementing these provisions. The provisions could affect the ability and willingness of cable systems to carry cable programming services. The Company has filed litigation challenging the provision as unconstitutional (see "Legal Proceedings - Turner Broadcasting System, Inc. v. Federal Communications Commission and The United States of America"). PROGRAM ACCESS On April 1, 1993, the Commission issued regulations implementing a provision that, among other things, makes it unlawful for a cable network, in which a cable operator has an attributable interest, to engage in certain "unfair methods of competition or unfair or deceptive acts or practices," the purpose and effect of which is to hinder significantly, or prevent, any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to cable subscribers or consumers. The provisions contain an exemption for any contract that grants exclusive distribution rights to a person with respect to satellite cable programming or that was entered into on or before June 1, 1990. While the Company cannot predict the regulations' full effect on its operations, such regulations may affect the rates charged by the Company's cable programming services to its customers and could affect the terms and conditions of contracts between the Company and its customers. The constitutionality of this provision has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld this provision. An appeal of that decision is pending in the United States Court of Appeals for the District of Columbia Circuit. Appeals of the Commission's implementing regulations have also been taken to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the ultimate outcome of the litigation. REGULATION OF CARRIAGE AGREEMENTS The 1992 Act contains a provision that requires the FCC to establish regulations governing program carriage agreements and related practices between cable operators and video programming vendors, including provisions to prevent the cable operator from requiring a financial interest in a program service as a condition of carriage and provisions designed to prohibit a cable operator from coercing a video programming vendor to provide exclusive rights as a condition of carriage. On October 22, 1993, the Commission issued regulations implementing this provision. The Company cannot at this time predict the effect of this provision on its operations. 21 22 The constitutionality of this provision has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court upheld the constitutionality of this provision. An appeal of that decision is pending in the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the outcome of the litigation. OWNERSHIP LIMITATIONS Section 11 of the 1992 Act directed the Commission to prescribe rules and regulations establishing limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such person and the number of channels that can be occupied by video programmers in which a cable operator has an attributable interest. The Commission must also consider the necessity of imposing limitations on the degree to which multichannel video programming distributors may engage in the creation or production of video programming. On December 28, 1992, the FCC issued a Notice of Proposed Rulemaking and Notice of Inquiry with respect to these provisions. On October 22, 1993, the FCC adopted a Second Report and Order that established a 40% limit on the number of channels that may be occupied by programming services in which the particular cable operator has an attributable interest. The Company is subject to this provision. The FCC also established a national limit of 30% on the number of homes passed that any one person can reach through cable systems owned by such person, but stayed implementation of that provision pending judicial review of its constitutionality. On April 5, 1995, the FCC denied the petitions for reconsideration. The Company cannot at this time predict the effect of this provision or these proposals on its operations. The constitutionality of these provisions has been challenged in litigation filed in the United States District Court for the District of Columbia. On September 27, 1993, the district court found the national limit on homes passed unconstitutional, but upheld the constitutionality of the channel capacity limits. An appeal of that decision is currently pending in the United States Court of Appeals for the District of Columbia Circuit. Appeals of the Commission's implementing regulations have also been taken to the United States Court of Appeals for the District of Columbia Circuit. The Company cannot predict the ultimate outcome of the litigation. SPORTS MIGRATION The 1992 Act directed the FCC to submit an interim report by July 1, 1993, and a final report by July 1, 1994, to Congress on the migration of sports programming from broadcast networks to cable networks and cable pay-per-view. On June 30, 1994, the FCC issued its final report in which it recommended that no action by Congress was necessary. 22 23 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 10.33.1 Amendment No. 1 to the Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan. 10.34.1 Amendment No. 2, dated as of May 24, 1995, by and between the Company and W. Thomas Johnson, to the Employment Agreement, dated as of December 20, 1993. 10.35.1 Amendment No. 2, dated as of May 24, 1995, by and between the Company and Terence F. McGuirk, to the Employment Agreement, dated as of December 20, 1993. 11 Computation of Earnings per Common and Common Equivalent Share. 27 Financial Data Schedule (for the SEC use only). (b) Reports on Form 8-K No reports have been filed on Form 8-K during the quarter for which this report is filed. 23 24 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TURNER BROADCASTING SYSTEM, INC. By: /s/ William S. Ghegan ------------------------------------ William S. Ghegan Vice President, Controller and Chief Accounting Officer Date: August 11, 1995 24 EX-10.33.1 2 TBS 1993 STK. OPT. AND EQUITY BASED AWARD SYSTEM 1 EXHIBIT 10.33.1 TURNER BROADCASTING SYSTEM, INC. 1993 STOCK OPTION AND EQUITY-BASED AWARD PLAN AMENDMENT NO. 1 WHEREAS, the Turner Broadcasting System, Inc. 1993 Stock Option and Equity-Based Award Plan (the "Plan") was approved by the Stock Option and Compensation Committee (the "Committee") of the Board of Directors of Turner Broadcasting System, Inc. (the "Corporation") and by the holders of a majority of the outstanding shares of the stock of the Corporation entitled to vote thereon at such time; WHEREAS, the Plan currently provides that, subject to certain adjustments in accordance with the Plan, the aggregate number of shares of Common Stock for which Awards may be granted under the Plan shall be 5,000,000 shares; WHEREAS, the Committee in its administration of the Plan has determined that it is in the best interest of the Corporation and the Optionees under the Plan to amend the Plan as more fully described below, subject to the limitations set forth in Section 21 of the Plan: WHEREAS, the plan shall be amended as follows: 1. Amendment. Subject to the approval of the shareholders of the Corporation, Section 5(a) of the Plan is hereby amended by the deletion of the reference to "5,000,000 shares" in the first sentence thereof and the insertion in lieu of such deleted language of a reference to "15,000,000 shares". 2. Effectiveness. The foregoing amendment to the Plan was approved as of April 24, 1995 by the Committee and the Board of Directors of the Corporation, and was recommended for submission to the shareholders of the Corporation for approval at the 1995 annual meeting of shareholders. The amendment set forth in paragraph 1 above shall become effective as of and only upon the approval by the holders of a majority of the outstanding shares of the stock of the Corporation represented at such annual meeting, provided that a quorum of shareholders is present in person or by proxy. 2 3. Defined Terms. All capitalized terms used herein without definition shall have the meanings assigned thereto in the Plan. 4. No Other Amendment. This Amendment No. 1 is limited precisely as written and shall not constitute a modification of any other provision of the Plan. Except as specifically modified or amended by this Amendment No. 1, the Plan shall remain in full force and effect in accordance with its terms. 2 EX-10.34.1 3 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT (JOHNSON) 1 EXHIBIT 10.34.1 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement (the "Second Amendment") is made and entered into as of the 24th day of May, 1995 by and between W. Thomas Johnson, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee and the Company are parties to that certain employment agreement of December 20, 1993, as amended as of January 26, 1994 (the "Employment Agreement"); WHEREAS, the parties desire to enter into this Second Amendment to amend the Employment Agreement so as to extend the term thereof: NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree to amend the Employment Agreement as follows: 1. Section 2 of the Employment Agreement is hereby deleted and the following new Section 2 shall be substituted therefor: Section 2. Term. The Term shall commence on the date of this Agreement and continue until the earlier to occur of the following: (a) the date that is five (5) years after December 20, 1993; or (b) in the event Employee's employment is terminated pursuant to Section 6 with an effective date that is prior to the date set forth in (a), then the effective date of such termination. References in the Employment Agreement to the 2 "Four-Year Term" are hereby amended to the term "Five-Year Term" and shall refer to the period of time from the date of the Agreement to the date that is five (5) years after December 20, 1993. 2. Schedule 3.2 of the Employment Agreement is hereby amended to substitute the following for the "Salary" and "Bonus" provisions of Schedule 3.2: "Salary: December 20, 1993 through December 19, 1994 - $700,000.00 December 20, 1994 through December 19, 1995 - $735,000.00 December 20, 1995 through December 19, 1996 - $770,000.00 December 20, 1996 through December 19, 1997 - $810,000.00 December 20, 1997 through December 19, 1998 - the greater of $870,750.00, or $810,000.00 plus the greater of the rate of increase in the Consumer Price Index for all urban consumers for the year ended December 31, 1997 as determined by the U.S. Department of Labor (U.S. City Average, with 1982 as the base year), or the rate of increase for similarly situated executives for the year ended December 31, 1997 as determined in the American Compensation Association Survey, as provided by Towers Perrin." "Bonus: For the year ended December 31, 1994 - $350,000.00 For the year ended December 31, 1995 - $365,000.00 For the year ended December 31, 1996 - $385,000.00 For the year ended December 31, 1997 - $405,000.00 For the year ended December 31, 1998 - $435,375.00" 3. This Second Amendment shall be contingent upon the Company granting to Employee the option to purchase 110,000 shares of the Company's Class B Common Stock at an option price of $16.875 per share (the "Option Grant") pursuant to the Turner Broadcasting System 1993 Stock Option and Equity-Based Award Plan (the "Plan"). The Option Grant shall be contingent only upon approval by the Company's Shareholders at the Annual Meeting of Shareholders on June 9, 1995 of the proposal to approve an amendment to the Plan (the "Plan Amendment"). The Option Grant shall -2- 3 provide for vesting of one-third of such options on December 19, 1996, one-third on December 19, 1997 and one-third on December 19, 1998. Notwithstanding anything herein or elsewhere to the contrary, in the event of Employee's death or disability on or prior to approval of the Plan Amendment, the salary, bonus and other benefits provided herein (other than the Option Grant) shall become effective upon the date of Employee's death or disability; and the Option Grant shall become effective upon the approval of the Plan Amendment by the Company's Shareholders. 4. Except as expressly amended hereby, the terms and conditions of the Employment Agreement shall remain in full force and effect. 5. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ Terence McGuirk ----------------------------- Its: Executive Vice President ---------------------------- ATTEST: /s/ Steven W. Korn -------------------------------- NAME: Steven W. Korn -------------------------------- TITLE: Vice President & General Counsel -------------------------------- EMPLOYEE /s/ W. Thomas Johnson ---------------------------------- W. Thomas Johnson -3- EX-10.35.1 4 SECOND AMENDMENT TO EMPLOYMENT AGR. (MCGUIRK) 1 EXHIBIT 10.35.1 SECOND AMENDMENT TO EMPLOYMENT AGREEMENT This Second Amendment to Employment Agreement (the "Second Amendment") is made and entered into as of the 24 day of May, 1995 by and between Terence F. McGuirk, an individual resident of the State of Georgia (hereinafter referred to as "Employee"), and Turner Broadcasting System, Inc., a corporation organized under the laws of the State of Georgia (hereinafter referred to as the "Company"); W I T N E S S E T H: WHEREAS, Employee and the Company are parties to that certain employment agreement of December 20, 1993, as amended as of January 26, 1994 (the "Employment Agreement"); WHEREAS, the parties desire to enter into this Second Amendment to amend the Employment Agreement so as to extend the term thereof; NOW, THEREFORE, in consideration of the premises and the mutual promises and agreements contained herein, the parties hereto, intending to be legally bound, hereby agree to amend the Employment Agreement as follows: 1. Section 2 of the Employment Agreement is hereby deleted and the following new Section 2 shall be substituted therefor: Section 2. Term. The Term shall commence on the date of this Agreement and continue until the earlier to occur of the following: (a) the date that is five (5) years after December 20, 1993; or (b) in the event Employee's employment is terminated pursuant to Section 6 with an effective date that is prior to the date set forth in (a), then the effective date of such termination. References in the Employment Agreement to the 2 "Four-Year Term" are hereby amended to the "Five-Year Term" and shall refer to the period of time from the date of the Agreement to the date that is five (5) years after December 20, 1993. 2. Schedule 3.2 of the Employment Agreement is hereby amended to substitute the following for the "Salary" and "Bonus" provisions of Schedule 3.2: "Salary: December 20, 1993 through December 19, 1994 - $855,000.00 December 20, 1994 through December 19, 1995 - $895,000.00 December 20, 1995 through December 19, 1996 - $940,000.00 December 20, 1996 through December 19, 1997 - $990,000.00 December 20, 1997 through December 19, 1998 - the greater of $1,064,250.00, or $990,000.00 plus the greater of the rate of increase in the Consumer Price Index for all urban consumers for the year ended December 31, 1997 as determined by the U.S. Department of Labor (U.S. City Average, with 1982 as the base year), or the rate of increase for similarly situated executives for the year ended December 31, 1997 as determined in the American Compensation Association Survey, as provided by Towers Perrin." "Bonus: For the year ended December 31, 1994 - $645,000.00 For the year ended December 31, 1995 - $680,000.00 For the year ended December 31, 1996 - $715,000.00 For the year ended December 31, 1997 - $750,000.00 For the year ended December 31, 1998 - $808,830.00" 3. This Second Amendment shall be contingent upon the Company granting to Employee the option to purchase 183,000 shares of the Company's Class B Common Stock at an option price of $16.875 per share (the "Option Grant") pursuant to the Turner Broadcasting System 1993 Stock Option and Equity-Based Award Plan (the "Plan"). The Option Grant shall be contingent only upon approval by the Company's Shareholders at the Annual Meeting of Shareholders on June 9, 1995 of the proposal to approve an amendment to the Plan (the "Plan Amendment"). The Option Grant shall -2- 3 provide for vesting of one-third of such options on December 19, 1996, one-third on December 19, 1997 and one-third on December 19, 1998. Notwithstanding anything herein or elsewhere to the contrary, in the event of Employee's death or disability on or prior to approval of the Plan Amendment, the salary, bonus and other benefits provided herein (other than the Option Grant) shall become effective upon the date of Employee's death or disability; and the Option Grant shall become effective upon the approval of the Plan Amendment by the Company's shareholders. 4. Except as expressly amended hereby, the terms and conditions of the Employment Agreement shall remain in full force and effect. 5. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Georgia. IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment as of the date first above written. TURNER BROADCASTING SYSTEM, INC. By: /s/ W. M. Shaw -------------------------------- Its: Vice President - Administration -------------------------------- ATTEST: /s/ Steven W. Korn -------------------------------- NAME: Steven W. Korn -------------------------------- TITLE: Vice President & General Counsel -------------------------------- EMPLOYEE /s/ Terence F. McGuirk ---------------------------------- Terence F. McGuirk -3- EX-11 5 COMPUTATION OF PRIMARY EARNINGS PER SHARE 1 EXHIBIT 11 PAGE 1 OF 2 TURNER BROADCASTING SYSTEM,INC. COMPUTATION OF PRIMARY EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1995 JUNE 30, 1995 ------------------ ---------------- Net income applicable to common stock $ 21,700 $ 43,690 ======== ======== Weighted average number of shares outstanding during the period 205,926 205,851 Add: Common equivalent shares issuable assuming conversion of Class C Convertible Preferred Stock 74,382 74,382 Shares issuable upon exercise of stock options 16,283 16,283 Subtract: Shares which would have been purchased with proceeds from exercise of such stock options 13,561 13,828 -------- -------- Weighted average number of common stock, common stock equivalents and converted shares outstanding 283,030 282,688 ======== ======== Weighted average number of Class A common shares and common stock equivalents 68,330 68,330 ======== ======== Weighted average number of Class B common shares and common stock equivalents 214,700 214,358 ======== ======== Earnings per share and common stock equivalent of Class A and Class B Common Stock $ 0.08 $ 0.15 ======== ========
2 EXHIBIT 11 PAGE 2 OF 2 TURNER BROADCASTING SYSTEM,INC. COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 1995 JUNE 30, 1995 ------------------ ---------------- Net income applicable to common stock $ 21,700 $ 43,690 Add: Interest expense on zero coupon subordinated convertible notes due 2007 4,510 8,942 Interest expense on 6.5% convertible notes 473 946 Subtract: Additional income taxes (2,093) (4,153) -------- -------- Adjusted net income applicable to common stock $ 24,590 $ 49,425 ======== ======== Primary weighted average number of shares outstanding 283,030 282,688 Add: Common equivalent shares issuable assuming conversion of convertible notes due 2007 7,440 7,440 Change in shares due to options assumed converted using the end of period market value 828 828 Common equivalent shares issuable assuming conversion of 6.5% convertible notes 1,661 1,661 -------- -------- Weighted average number of common stock, common stock equivalents and convertible shares, assuming full dilution 292,959 292,617 ======== ======== Weighted average number of Class A common shares and common equivalents and convertible shares, assuming full dilution 68,330 68,330 ======== ======== Weighted average number of Class B common shares and common equivalents and convertible shares, assuming full dilution 224,629 224,287 ======== ======== Earnings per share and common stock equivalent of Class A and Class B Common Stock $ 0.08 $ 0.17 ======== ========
This calculation is submitted in accordance with the rules and regulations of the Securities and Exchange Commission. Under generally accepted accounting principles this presentation would not be made because it is anti-dilutive. EX-27 6 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1995, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JAN-01-1995 JUN-30-1995 68,808 0 410,791 (34,592) 0 1,041,207 568,928 (244,718) 3,866,705 622,753 2,288,032 12,875 0 260,438 109,153 3,866,705 1,508,201 1,508,201 886,065 1,332,331 0 9,523 97,284 75,328 31,638 43,690 0 0 0 43,690 0.15 0.00
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