-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ogdln1rRBFwmKHFLnJQmCPJmQbdlg2m0ifdrww1mFryJdWlagIKPIYqVZ9+bB9q4 jTvT8GXpb3VNKHzY1wBVxg== 0000950144-96-008256.txt : 19961118 0000950144-96-008256.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950144-96-008256 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 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: 000-09334 FILM NUMBER: 96664405 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: ONE CNN CENTER 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 TURNER BROADCASTING, 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 September 30, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 For the transition period from to ------------ ------------ 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 September 30, 1996 - ------------------------------------ ---------------------------- Class A Common Stock, par value $0.0625 68,330,388 Class B Common Stock, par value $0.0625 140,446,115
2 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS TURNER BROADCASTING SYSTEM, INC. CONSOLIDATED CONDENSED BALANCE SHEETS UNAUDITED (IN THOUSANDS)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---------------- ----------------- ASSETS Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . $ 83,885 $ 85,185 Accounts receivable, less allowance of $39,910 and $38,503 Unaffiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 512,162 464,923 Affiliated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,238 92,657 Film costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 766,511 567,031 Installment contracts receivable, less allowance of $6,083 and $7,633 . . . . . . . . . . . . . . . . . . . . 59,705 47,928 Prepaid expense and other current assets . . . . . . . . . . . . . . . . . 212,243 135,597 --------------- --------------- Total current assets . . . . . . . . . . . . . . . . . . . . . . . . 1,734,744 1,393,321 Film costs, less current portion . . . . . . . . . . . . . . . . . . . . . 2,082,719 1,936,565 Property and equipment, less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 385,845 358,528 Goodwill and other intangible assets . . . . . . . . . . . . . . . . . . . 415,995 427,611 Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 262,244 279,375 --------------- --------------- TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 4,881,547 $ 4,395,400 =============== =============== LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99,999 $ 64,704 Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 390,064 292,167 Deferred income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 128,058 83,772 Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . - 63,693 Participants' share and royalties payable . . . . . . . . . . . . . . . . . 155,338 107,254 Interest payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,060 33,011 Film contracts payable . . . . . . . . . . . . . . . . . . . . . . . . . . 121,750 69,802 Current portion of long-term debt . . . . . . . . . . . . . . . . . . . . . 2,182 1,543 Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 86,971 123,693 --------------- --------------- Total current liabilities . . . . . . . . . . . . . . . . . . . . . 1,001,422 839,639 Long-term debt, less current portion . . . . . . . . . . . . . . . . . . . 2,765,019 2,479,770 Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 517,538 421,685 Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . 146,027 216,627 --------------- --------------- TOTAL LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . . 4,430,006 3,957,721 TOTAL STOCKHOLDERS' EQUITY . . . . . . . . . . . . . . . . . . . . 451,541 437,679 --------------- --------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . . . . $ 4,881,547 $ 4,395,400 =============== ===============
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 NINE MONTHS ENDED ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------- ------------------------------- 1996 1995 1996 1995 -------------- -------------- --------------- -------------- Revenue Unaffiliated . . . . . . . . . . . . . . . . . . . . . $ 929,333 $ 887,030 $ 2,360,448 $ 2,165,514 Affiliated . . . . . . . . . . . . . . . . . . . . . . 156,141 119,551 400,245 349,268 -------------- -------------- --------------- ------------- 1,085,474 1,006,581 2,760,693 2,514,782 -------------- -------------- --------------- ------------- Cost of operations . . . . . . . . . . . . . . . . . . . . 806,146 654,546 1,857,777 1,551,944 Selling, general and administrative . . . . . . . . . . . . 251,256 226,078 725,427 616,440 Equity in (income) loss of unconsolidated entities . . . . . . . . . . . . . 1,711 (6,185) 6,160 1,552 Costs of accounts receivable securitization program . . . . . . . . . . . . . . . . 2,040 4,811 10,843 8,069 Time Warner merger costs . . . . . . . . . . . . . . . . . 1,967 - 8,680 - Depreciation of property and equipment and amortization of intangible assets . . . . . . . . . . 24,855 20,258 70,343 57,092 Interest expense, net of interest income . . . . . . . . . 42,232 43,348 123,415 140,632 -------------- -------------- --------------- ------------- 1,130,207 942,856 2,802,645 2,375,729 -------------- -------------- --------------- ------------- Income (loss) before provision (benefit) for income taxes . . . . . . . . . . . . . (44,733) 63,725 (41,952) 139,053 Provision (benefit) for income taxes . . . . . . . . . . . (23,112) 23,969 (21,794) 55,607 ------------- -------------- --------------- ------------ Net income (loss) . . . . . . . . . . . . . . . . . . $ (21,621) $ 39,756 $ (20,158) $ 83,446 ============= ============== =============== ============ Earnings (loss) per common share and common stock equivalent Net income (loss). . . . . . . . . . . . . . . . . . $ (0.10) $ 0.14 $ (0.10) $ 0.29 ============= ============== =============== ============ Weighted average number of common shares outstanding, including conversion of common stock equivalents, when applicable . . . . . . . . . . . . . . . . . . . 208,727 285,433 208,001 283,817
See accompanying Notes to Consolidated Condensed Financial Statements. 3 4 TURNER BROADCASTING SYSTEM, INC. CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS UNAUDITED (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ---------------------------------- 1996 1995 ------------- --------------- Cash provided by operations before changes in film costs and liabilities, net . . . . . . . . . . . . . . . . . . . . . $ 12,637 $ 196,384 Changes in film costs and liabilities, net Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . . . 58,990 65,817 Produced programming . . . . . . . . . . . . . . . . . . . . . . . . . . . (241,886) 54,403 Licensed program and distribution rights . . . . . . . . . . . . . . . . . (20,185) (8,839) --------- ------------ Net cash provided by (used for) operations . . . . . . . . . . . . . . . . . . . (190,444) 307,765 --------- ------------ Cash provided by (used for) investing activities Distributions from unconsolidated entities . . . . . . . . . . . . . . . . . 3,205 7,605 Acquisitions and advances to unconsolidated entities . . . . . . . . . . . . (2,902) (7,051) Additions to property and equipment . . . . . . . . . . . . . . . . . . . . (102,910) (72,617) ------------ ----------- Net cash used for investing activities . . . . . . . . . . . . . . . . . . . . . (102,607) (72,063) ------------ ----------- Cash provided by (used for) financing activities Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 301,068 75,000 Payments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (649) (270,285) Payments of cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . (14,847) (14,720) Proceeds from exercise of stock options . . . . . . . . . . . . . . . . . . 6,179 6,225 ------------ ------------ Net cash provided by (used for) financing activities . . . . . . . . . . . . . . 291,751 (203,780) ------------ ------------ Net increase (decrease) in cash and cash equivalents . . . . . . . . . . . . . . (1,300) 31,922 Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . 85,185 52,895 ------------ ------------ Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . $ 83,885 $ 84,817 ============ ============ SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION AND NON-CASH INVESTING AND FINANCING ACTIVITIES: Cash paid for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,194 $ 66,790 Net interest paid, including interest capitalized of $15,541 and $12,115 . . . . . . . . . . . . . . . . . . . . . 146,051 155,426 Conversion of convertible subordinated debentures originally issued by a wholly-owned subsidiary . . . . . . . . . . . . . . . 29,075 -
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, 1995. Certain prior year amounts have been reclassified to conform to the current year presentation. NOTE 2. MERGER WITH TIME WARNER INC. On October 10, 1996, the mergers (the "Mergers") contemplated by the Amended and Restated Agreement and Plan of Merger dated September 22, 1995, as amended as of August 8, 1996, among the Company, Time Warner Inc. ("Old Time Warner"), TW Inc. ("New Time Warner"), Time Warner Acquisition Corp. and TW Acquisition Corp. (the "Merger Agreement"), were approved by the shareholders of the Company and the stockholders of Old Time Warner. Also, on October 10, 1996, the Company, Old Time Warner and Liberty Media Corporation ("LMC") closed the transactions contemplated by the Merger Agreement and the Second Amended and Restated LMC Agreement dated as of September 22, 1995, among Old Time Warner, New Time Warner, LMC and certain subsidiaries of LMC. Pursuant to the Merger Agreement, (i) each outstanding share of Class A and Class B Common Stock, par value $.0625 per share, of the Company, other than shares held directly or indirectly by Old Time Warner or New Time Warner or in the treasury of the Company, was converted into the right to receive 0.75 of a share of common stock, par value of $.01 per share, of New Time Warner ("TW Common Stock"), (ii) each outstanding share of Class C Preferred Stock, par value $.125 per share, of the Company, other than shares held directly or indirectly by Old Time Warner or New Time Warner or in the treasury of the Company, was converted into the right to receive 4.80 shares of TW Common Stock, (iii) each outstanding share of common stock, par value $1.00 per share, of Old Time Warner, other than shares held directly or indirectly by Old Time Warner, was converted into one share of TW Common Stock, and (iv) each outstanding share of each series of preferred stock, par value $1.00 per share, of Old Time Warner, other than shares held directly or indirectly by Old Time Warner, was converted into one share of a substantially identical series of preferred stock, par value $.10 per share, of New Time Warner. As a result of the Mergers, New Time Warner, which has been renamed Time Warner Inc., owns, directly and indirectly, the entire equity interest in each of the Company and Old Time Warner, which has been renamed Time Warner Companies Inc. Concurrently with the closing of the Mergers on October 10, 1996, the Company sold to LMC Southeast Sports, Inc. all of the outstanding capital stock of Turner Sports Programming, Inc. ("TSPI") which owns a 44% interest in SportSouth Network, Ltd. The purchase price for the stock of TSPI was approximately $65,000,000, as determined in accordance with a formula set forth in the stock purchase agreement for such transaction, which purchase price may be subject to a post-closing adjustment. The Mergers are not reflected in the accompanying consolidated condensed financial statements of the Company. As a result of the Mergers and the application of the purchase method of accounting for business combinations by New Time Warner, such historical consolidated condensed financial statements may be adjusted in the fourth quarter of 1996. The valuations and other studies which will provide the basis for such adjustments have not been completed. 5 6 NOTE 3. FILM COSTS The following table sets forth the components of unamortized film costs (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------------- ------------------ Purchased program rights . . . . . . . . . . . . . . . . . . . . . . . $ 961,336 $ 1,017,761 Produced programming Released . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 511,000 397,639 Completed and not released . . . . . . . . . . . . . . . . . . . . . 143,688 73,706 In process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 667,271 504,997 Episodic television . . . . . . . . . . . . . . . . . . . . . . . . 112,142 101,430 Licensed program and distribution rights . . . . . . . . . . . . . . . 346,039 302,370 Prepaid licensed program rights . . . . . . . . . . . . . . . . . . . 107,754 105,693 ----------------- --------------- 2,849,230 2,503,596 Less current portion . . . . . . . . . . . . . . . . . . . . . . . . . 766,511 567,031 ----------------- --------------- $ 2,082,719 $ 1,936,565 ================= ===============
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 88% of released and episodic television produced programming costs at September 30, 1996 will be amortized within the three-year period ending September 30, 1999. Amortization of film costs included in Cost of operations is composed of the following (in thousands):
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------------------ ----------------------------- 1996 1995 1996 1995 ------------- ------------- ---------------- ----------- Purchased program rights . . . . . . . . . . . . . . . $ 22,132 $ 22,750 $ 65,936 $ 67,696 Produced programming . . . . . . . . . . . . . . . . 444,467 325,898 960,566 706,702 Licensed program and distribution rights . . . . . . . . . . . . . . . . . . . . . . 32,532 25,852 95,417 76,372 Participants' share and royalties . . . . . . . . . . . 41,850 78,201 87,413 115,641 Non-cash amortization of certain acquisition purchase adjustments . . . . . . . . . 1,406 13,013 4,748 16,305 ------------ ------------ --------------- ----------- $ 542,387 $ 465,714 $ 1,214,080 $ 982,716 ============ ============ =============== ===========
NOTE 4. EARNINGS 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 1996 and 1995. 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. In 1996, 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 originally issued by a wholly-owned subsidiary are excluded from the fully-diluted calculations of net income (loss) per common share for the three-month and nine-month periods ended September 30, 1996 and 1995 due to their anti-dilutive effect. The difference between primary and fully-diluted earnings per share is not significant. 6 7 NOTE 5. LONG-TERM DEBT Long-term debt is summarized as follows (in thousands):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---------------- ---------------- Bank credit facilities . . . . . . . . . . . . . . . . . . . . $ 1,735,000 $ 1,435,000 8 3/8% Senior Notes . . . . . . . . . . . . . . . . . . . . . 297,491 297,442 7.4% Senior Notes . . . . . . . . . . . . . . . . . . . . . . 249,689 249,666 8.4% Senior Debentures . . . . . . . . . . . . . . . . . . . . 199,847 199,846 Zero coupon subordinated convertible notes . . . . . . . . . . 278,165 263,694 Convertible subordinated debentures originally issued by a wholly-owned subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . - 29,075 Obligations under capital leases . . . . . . . . . . . . . . . 5,707 5,254 Other long-term debt . . . . . . . . . . . . . . . . . . . . . 1,302 1,336 ---------------- ---------------- 2,767,201 2,481,313 Less current portion . . . . . . . . . . . . . . . . . . . . . 2,182 1,543 ---------------- ---------------- $ 2,765,019 $ 2,479,770 ================ ================
On January 4, 1996, the Company called for redemption on February 5, 1996 all of the convertible subordinated debentures originally issued by a wholly-owned subsidiary and subsequently assumed by the Company. All of the debentures outstanding, which aggregated approximately $29,000,000, were converted into the Company's Class B Common Stock at $17.51 per share or 57.11 shares of Class B Common Stock for each $1,000 face amount of debentures. The conversion resulted in the issuance of approximately 1.7 million shares of Class B Common Stock. In connection with the consummation of the Mergers under the Merger Agreement, New Time Warner guaranteed all of the obligations of the Company under the indentures for the Company's 8 3/8% Senior Notes due 2013, 7.4% Senior Notes due 2004 and 8.4% Senior Debentures due 2024 and the Company's zero coupon subordinated convertible notes due 2007. NOTE 6. STOCKHOLDERS' EQUITY Stockholders' equity consists of the following components (in thousands, except share data):
SEPTEMBER 30, DECEMBER 31, 1996 1995 ---------------- ----------------- 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 140,446,115 and 137,982,831 shares . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,778 8,624 Capital in excess of par value . . . . . . . . . . . . . . . . 1,132,895 1,084,181 Accumulated deficit . . . . . . . . . . . . . . . . . . . . . . (954,841) (919,835) --------------- --------------- Total stockholders' equity . . . . . . . . . . . . . . . . $ 451,541 $ 437,679 =============== ===============
On February 16, 1996, May 31, 1996 and September 3, 1996, 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 $0.1050 for each share held on the record date based on the number of shares of Class B Common Stock which would be issued 7 8 upon conversion of each share of Class C Preferred Stock. Cash dividends of $4,944,000, $4,949,000 and $4,954,000 were paid on March 29, 1996, June 28, 1996 and September 30, 1996, respectively, to shareholders of record at the close of business on March 15, 1996, June 14, 1996 and September 16, 1996, 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. In connection with its acquisition of New Line Cinema Corporation ("New Line Cinema") in January 1994, the Company assumed warrants (the "Warrants") originally issued by New Line Cinema which were exercisable for 250,000 shares of New Line Cinema common stock. Upon the assumption of the Warrants by the Company, the Warrants became exercisable for an aggregate of 240,965 shares of the Company's Class B Common Stock at an exercise price of $14.39 per share. On July 17, 1996, all of the Warrants were exercised for an aggregate exercise price of $3,467,000 and the Company issued an aggregate of 240,965 shares of Class B Common Stock to the holders of the Warrants. 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 proceeds 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 has continued to sell participating interests in new receivables up to the maximum allowable under the program. 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 was scheduled to expire in May 1996 but was renewed in April 1996 for another one-year term, the Company performs collection and administrative responsibilities related to the receivables sold as agent for the purchaser. As of September 30, 1996, the Company had sold an undivided interest in this designated pool of domestic cable and advertising accounts receivable that aggregated $277,000,000, generating net proceeds of $221,000,000. The estimated total cost of the program for the sale of accounts receivable during the three-month and nine-month periods ended September 30, 1996, approximated $2,000,000 and $10,800,000, respectively, and is reflected as a reduction of operating profit in the consolidated condensed statements of operations. 8 9 NOTE 8. INCOME TAXES The 1991 and 1992 consolidated federal income tax returns of the Company have been examined by the Internal Revenue Service (the "IRS"). As a result of the examination, the IRS has issued a deficiency notice for additional taxes. The IRS is prohibited from collecting the disputed tax until the taxpayer has had an opportunity to seek a redetermination of the asserted deficiency in court. On June 25, 1996, the Company filed a petition in U.S. Tax Court contesting the notice as it believes the items in dispute have been properly reported in its tax returns. The Company does not anticipate a quick resolution of this matter and the ultimate result cannot be predicted at this time. However, in the opinion of management, any additional tax liability resulting from this matter would not have a material adverse impact on the consolidated financial position or operating results of the Company. NOTE 9. SUBSEQUENT EVENTS As of June 30, 1996, the Company owned a 33.1% limited partnership interest in n-tv, a 24-hour German language news channel. On October 29, 1996, an unaffiliated third-party acquired a 25% limited partnership interest in n-tv. This transaction had the effect of reducing the Company's ownership interest in n-tv to approximately 25.5%, effective July 2, 1996. This transaction did not have a material impact on the consolidated financial position or operating results of the Company. 9 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES SOURCES AND USES OF CASH Cash used for operations after changes in film costs and associated liabilities for the nine months ended September 30, 1996 aggregated $190 million, including a net change in film costs and associated liabilities of $203 million, and cash interest payments, net of cash interest received, of $146 million. Other primary uses of cash during the period included additions to property and equipment of $103 million. The primary source of cash for the period was borrowings under the unsecured revolving credit facilities of $300 million. Included in the net change in film costs were $1.0 billion utilized by the Company for original entertainment and sports programming (including $649 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. The agreement was renewed in April 1996 for another one-year term. As of September 30, 1996, the Company had sold an undivided interest in this designated pool of its domestic cable and advertising accounts receivable that aggregated $277 million. The original proceeds were used in 1995 to repay amounts outstanding under the Company's unsecured revolving credit facilities. During 1996, the Company has recognized costs of approximately $11 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 Note 5 and Note 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 $2.8 billion of outstanding indebtedness at September 30, 1996, of which $1.7 billion was outstanding under unsecured revolving credit facilities with banks. On January 4, 1996, the Company called for redemption on February 5, 1996 all of the convertible subordinated debentures originally issued by a wholly-owned subsidiary and subsequently assumed by the Company. All of the debentures outstanding, which aggregated approximately $29 million, were converted into the Company's Class B Common Stock at $17.51 per share or 57.11 shares of Class B Common Stock for each $1,000 face amount of debentures. The conversion resulted in the issuance of approximately 1.7 million shares of Class B Common Stock. In connection with the consummation of the Mergers under the Merger Agreement, New Time Warner guaranteed all of the obligations of the Company under the indentures for the Company's 8 3/8% Senior Notes due 2013, 7.4% Senior Notes due 2004 and 8.4% Senior Debentures due 2024 and the Company's zero coupon subordinated convertible notes due 2007. 10 11 CAPITAL RESOURCES AND COMMITMENTS During the next 12 months, the Company anticipates making cash expenditures at the entertainment networks of approximately $295 million for sports programming, primarily rights fees, approximately $175 million for original entertainment programming and approximately $115 million for licensed programming. In the entertainment production and distribution companies, such anticipated cash expenditures are continuing to be evaluated in connection with the Mergers. Also, during the next 12 months, the Company as a whole expects to make total expenditures of approximately $135 million for additional or replacement property and equipment. Firm commitments of approximately $445 million exist for programming and capital expenditures during the next 12 months, excluding those in production and distribution companies. 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 from operations and financing arrangements with lessors, vendors and additional borrowings. Merger with Time Warner Inc. On October 10, 1996, the mergers (the "Mergers") contemplated by the Amended and Restated Agreement and plan of Merger dated September 22, 1995, as amended as of August 8, 1996, among the Company, Time Warner Inc. ("Old Time Warner"), TW Inc. ("New Time Warner"), Time Warner Acquisition Corp. and TW Acquisition Corp. (the "Merger Agreement"), were approved by the shareholders of the company and the stockholders of Old Time Warner. Also, on October 10, 1996, the Company, Old Time Warner and Liberty Media Corporation ("LMC") closed the transactions contemplated by the Merger Agreement and the Second Amended and Restated LMC Agreement dated as of September 22, 1995, among Old Time Warner, New Time Warner, LMC and certain subsidiaries of LMC. Pursuant to the Merger Agreement, (i) each outstanding share of Class A and Class B Common Stock, par value $.0625 per share, of the Company, other than shares held directly or indirectly by Old Time Warner or New Time Warner or in the treasury of the Company, was converted into the right to receive 0.75 of a share of common stock, par value $.01 per share, of New Time Warner ("TW Common Stock"), (ii) each outstanding share of Class C Preferred Stock, par value $.125 per share, of the Company, other than shares held directly or indirectly by Old Time Warner or New Time Warner or in the treasury of the Company, was converted into the right to receive 4.80 shares of TW Common Stock, (iii) each outstanding share of common stock, par value $1.00 per share, of Old Time Warner, other than shares held directly or indirectly by Old Time Warner, was converted into one share of TW Common Stock, and (iv) each outstanding share of each series of preferred stock, par value $1.00 per share, of Old Time Warner, other than shares held directly or indirectly by Old Time Warner, was converted into one share of a substantially identical series of preferred stock, par value $.10 per share, of New Time Warner. As a result of the Mergers, New Time Warner, which has been renamed Time Warner Inc., owns, directly and indirectly, the entire equity interest in each of the Company and Old Time Warner, which has been renamed Time Warner Companies Inc. Concurrently with the closing of the Mergers on October 10, 1996, the company sold to LMC Southeast Sports, Inc. all of the outstanding capital stock of Turner Sports Programming, Inc. ("TSPI") which owns a 44% interest in SportSouth Network, Ltd. The purchase price for the stock of TSPI was approximately $65 million as determined in accordance with a formula set forth in the stock purchase agreement for such transaction, which purchase price may be subject to a post-closing adjustment. The Mergers are not reflected in the accompanying consolidated condensed financial statements of the Company. As a result of the Mergers and the application of the purchase method of accounting for business combinations by New Time Warner, such historical consolidated condensed financial statements may be adjusted in the fourth quarter of 1996. The valuations and other studies which will provide the basis for such adjustments have not been completed. 11 12 RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 VS. THREE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED UNAUDITED THREE MONTHS ENDED THREE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 ------------------ ------------------ (IN THOUSANDS) Revenue Entertainment Networks $ 366,805 $ 312,361 Production & Distribution 455,958 482,033 Intrasegment revenue elimination (16,902) (16,858) -------------- --------------- Total Entertainment 805,861 777,536 News 210,199 176,325 Other 82,504 64,829 Intersegment revenue elimination (13,090) (12,109) -------------- --------------- $ 1,085,474 $ 1,006,581 ============== =============== Operating profit (loss) Entertainment Networks $ 70,353 $ 70,604 Production & Distribution (113,631) (11,888) Intrasegment elimination 5,051 3,918 -------------- --------------- Total Entertainment (38,227) 62,634 News 55,662 58,341 Other (14,218) (15,276) Equity in income (loss) of unconsolidated entities (1,711) 6,185 Costs of accounts receivable securitization program (2,040) (4,811) Time Warner merger costs (1,967) - -------------- --------------- $ (2,501) $ 107,073 ============== ===============
ENTERTAINMENT SEGMENT Entertainment Segment revenue increased $28 million, or 4%, from $778 million to $806 million. In the entertainment networks, subscription revenue increased $29 million, or 21%, from $134 million to $163 million, as a result of higher rates as well as an increase in cable and home satellite viewers, primarily at TNT. Advertising revenue for the entertainment networks increased $23 million, or 14%, from $166 million to $189 million, primarily due to a strong overall advertising market for TBS Superstation, TNT, and the Cartoon Network. In the production and distribution companies, home video revenue increased $55 million, or 59%, from $95 million to $150 million, primarily due to an increase in domestic sales of existing library product. Theatrical film revenues increased $27 million, from $72 million to $99 million, due to the timing and number of releases in the third quarter of 1996 in comparison to 1995. Television syndication revenue decreased $104 million, from $264 million to $160 million, due to the impact of the 1995 initial off-network syndication of Seinfeld, offset by additional off-network syndication of the program in 1996 and an increase in New Line Cinema Corporation ("New Line") and other Castle Rock Entertainment ("Castle Rock") product available in the television syndication markets. 12 13 Operating profit for the Entertainment Segment decreased $101 million, from an operating profit of $63 million to an operating loss of $38 million. Operating profit for the entertainment networks increased $1 million, from $82 million to $83 million after the effect of intrasegment eliminations, due primarily to the revenue increases described above, offset by increased costs related to sports and entertainment programming. Operating losses from the production and distribution companies increased $103 million, substantially due to disappointing results for domestic and international theatrical releases, which resulted in write-offs of approximately $109 million. NEWS SEGMENT News Segment revenue rose $34 million, or 19%, from $176 million to $210 million. Advertising revenue increased $22 million, or 27%, due to increased viewership during the 1996 U.S. political conventions and presidential campaign, as well as increased international advertising revenue at CNN International. Subscription revenue increased $8 million, or 11%, from $75 million to $83 million, due to an increase in both cable and home satellite viewers at CNN and CNN International. Operating profit for the News Segment decreased $2 million, or 5%, from $58 million to $56 million as revenue increases were offset by increased newsgathering costs including costs associated with political coverage as well as CNNfn and CNN-SI start-up costs. OTHER SEGMENT Revenue for the Other Segment increased $18 million, or 27%, from $65 million to $83 million. Revenue at World Championship Wrestling ("WCW") increased $9 million primarily due to increased syndication and pay-per-view revenues. Revenue at the Omni Arena and Hotel in Atlanta increased $9 million due to increased usage during the 1996 Olympic Games. Overall, revenue increases outpaced increased costs including those associated with corporate infrastructure spending, resulting in a $1 million decrease in operating losses for the quarter. EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/MISCELLANEOUS The Company's share of operating losses from unconsolidated entities increased by $8 million primarily due to the inclusion in 1995 of the Atlanta Hawks' allocation of $9 million in franchise fees from the NBA's admission of two new teams starting in the 1995-96 season. In May 1995, the Company sold an undivided percentage ownership interest in a designated domestic cable and advertising accounts receivable pool of approximately $300 million. The original proceeds were used to repay amounts outstanding under the Company's unsecured revolving credit facilities. The Company recognized costs of approximately $2 million in the third quarter in connection with this securitization program. The ongoing costs of the securitization program are anticipated to be less than those the Company would have otherwise incurred under its unsecured revolving credit facilities. The Company incurred approximately $2 million of expenses related to the transactions contemplated by the Merger Agreement. Consolidated interest expense decreased $1 million, from $43 million to $42 million, due to an increase in interest income associated with long-term 13 14 receivables and lower interest rates related to the Company's revolving credit facilities. As a result of the information discussed above, the Company reported a net loss of $22 million in the third quarter of 1996 ($0.10 net loss per common share). This compares to net income of $40 million in the third quarter of 1995 ($0.14 net income per common share and common share equivalent). RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 VS. NINE MONTHS ENDED SEPTEMBER 30, 1995
UNAUDITED UNAUDITED NINE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1995 ------------------ ------------------- (IN THOUSANDS) Revenue Entertainment Networks $ 1,040,151 $ 865,883 Production & Distribution 1,035,865 1,035,234 Intrasegment revenue elimination (87,784) (63,085) -------------- --------------- Total Entertainment 1,988,232 1,838,032 News 617,324 555,032 Other 191,119 148,791 Intersegment revenue elimination (35,982) (27,073) -------------- --------------- $ 2,760,693 $ 2,514,782 ============== =============== Operating profit (loss) Entertainment Networks $ 206,478 $ 179,366 Production & Distribution (203,214) (24,796) Intrasegment elimination (17,352) 548 -------------- --------------- Total Entertainment (14,088) 155,118 News 182,231 195,204 Other (60,997) (61,016) Equity in loss of unconsolidated entities (6,160) (1,552) Costs of accounts receivable securitization program (10,843) (8,069) Time Warner merger costs (8,680) - -------------- --------------- $ 81,463 $ 279,685 ============== ===============
ENTERTAINMENT SEGMENT Entertainment Segment revenue increased $150 million, or 8%, from $1.84 billion to $1.99 billion. In the entertainment networks, advertising revenue increased $101 million, or 19%, from $526 million to $627 million, due to a strong overall advertising market for TNT and TBS Superstation. Subscription revenue for the entertainment networks increased $67 million, or 22%, from $305 million to $372 million, as a result of higher rates as well as an increase in both cable and home satellite viewers, primarily at TNT. In the production and distribution companies, home video revenue increased $55 million, or 19%, from $293 million to $348 million, primarily due to an increase in domestic sales of existing library product. Television syndication revenue decreased $76 million, or 19%, from $399 million to $323 million, due to the impact of the 1995 initial 14 15 off-network syndication of Seinfeld, offset by additional off-network syndication of the program in 1996 and an overall increase in New Line and other Castle Rock product available in the television syndication markets. Operating profit for the Entertainment Segment decreased $169 million, from an operating profit of $155 million to an operating loss of $14 million. Operating profit for the entertainment networks increased $38 million, or 18%, from $209 million to $247 million after the effect of intrasegment eliminations, primarily due to the revenue increases described above partially offset by increased costs related to sports and entertainment programming. Operating losses from the production and distribution companies increased $207 million from $54 million to $261 million. The increase was substantially due to disappointing results from domestic and international theatrical releases, which resulted in write-offs of approximately $200 million. NEWS SEGMENT News Segment revenue increased $62 million, or 11%, from $555 million to $617 million. Advertising revenue increased $31 million, or 11%, from $274 million to $305 million, primarily due to the continued expansion of CNN International, as well as from increased viewership during the 1996 U.S. political conventions and presidential campaign. Subscription revenue increased $23 million, or 10%, from $221 million to $244 million, due to an increase in both cable and home satellite viewers at CNN and CNN International. Operating profit for the News Segment decreased $13 million, or 7%, from $195 million to $182 million, as revenue increases were offset by increased newsgathering costs associated with political coverage as well as CNNfn and CNN-SI start-up costs. OTHER SEGMENT Revenue for the Other Segment increased $42 million, or 28%, from $149 million to $191 million. Atlanta Braves revenue increased $16 million primarily due to an increase in the number of games played in 1996 compared to the strike-shortened 1995 season. Revenue at WCW increased $18 million, primarily due to increased syndication and pay-per-view revenues. Revenue at the Omni Arena and Hotel in Atlanta increased $10 million due to increased usage during the 1996 Olympic Games. Overall, revenue increases were offset by increased costs, primarily related to general corporate infrastructure spending, resulting in no significant change in operating losses. EQUITY IN LOSS OF UNCONSOLIDATED ENTITIES/MISCELLANEOUS The Company's share of operating losses from unconsolidated entities increased $5 million, due primarily to the inclusion in 1995 of the Atlanta Hawks' allocation of $9 million in franchise fees from the NBA's admission of two new teams starting in the 1995-96 season, offset by increased earnings from SportSouth Network, Ltd. and improved operations at n-tv, a 24-hour German news network. In May 1995, the Company sold an undivided percentage ownership interest in a designated domestic cable and advertising accounts receivable pool of approximately $300 million. The original proceeds were used to repay amounts outstanding under the Company's unsecured revolving credit facilities. The Company recognized costs of approximately $11 million for the nine month period 15 16 ended September 30, 1996 in connection with this securitization program. The ongoing costs of the securitization program are anticipated to be less than those the Company would have otherwise incurred under its unsecured revolving credit facilities. The Company incurred approximately $9 million of expenses related to the Transaction contemplated by the Merger Agreement. Consolidated interest expense decreased $18 million, from $141 million to $123 million, primarily due to lower interest rates associated with the Company's revolving credit facilities as well as increased interest income associated with long-term receivables. As a result of the information discussed above, the Company reported a net loss of $20 million for the nine months ended September 30, 1996 ($0.10 net loss per common share). This compares to net income of $83 million for the nine months ended September 30, 1995 ($0.29 net income per common share and common share equivalent). 16 17 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Turner Broadcasting System, Inc., et al. v. Federal Communications Commission, et al. On October 5, 1992, the Company filed suit in the United States District Court for the District of Columbia (the "District Court") challenging the provisions of the Cable Television Consumer Protection and Competition Act of 1992 (the "1992 Act") that require cable television systems to devote up to one-third or more of their channel capacity to the carriage of local television stations and provide certain channel positioning rights to such stations. The provisions also grant television stations the right to require prior consent to the retransmission by a cable operator of the station's broadcast signal. The Company's complaint alleges that these provisions infringe upon the free speech rights of cable program networks and cable operators in violation of the First Amendment of the United States Constitution. Under a provision in the 1992 Act, the case was heard by a three-judge panel of the District Court. On April 8, 1993, the District Court upheld the constitutionality of the provisions by a 2-1 vote. On June 17, 1994, the United States Supreme Court vacated the District Court's ruling and remanded the case for further proceedings. On December 12, 1995, the District Court, on remand, again upheld the constitutionality of the provisions by a 2-1 vote. On December 21, 1995, the Company appealed the District Court's ruling to the United States Supreme Court. On February 20, 1996, the Supreme Court noted probable jurisdiction to hear the Company's appeal and heard oral argument on October 7, 1996. The Company cannot predict the outcome of the litigation at this time. The Company is pursuing its claims. Shareholder Litigation in Connection with Proposed Merger Seventeen actions were originally filed against the Company, Time Warner, certain officers and directors of the Company, Time Warner or Time Warner Entertainment Company, L.P., and other defendants, purportedly on behalf of a class of the Company's shareholders, in connection with the merger transaction involving the Company and Time Warner (the "Mergers"). Sixteen of the seventeen complaints were filed in Superior Court, Fulton County, Georgia; the other, which was filed in the Court of Chancery of the State of Delaware in and for New Castle County, was subsequently dismissed voluntarily without prejudice by the plaintiff. Of the complaints filed in Georgia, fourteen were filed prior to the approval of the Mergers on September 22, 1995 by the Boards of Directors of Time Warner and the Company (Shigala v. Turner Broadcasting Sys., Inc., et al., Case No. E-41502; Schrank v. R.E. Turner, et al., Case No. E-41501; Lewis, et al. v. Turner Broadcasting Sys., Inc., et al., Case No. E-41500; Silverstein and Silverstein v. Turner Broadcasting Sys., Inc., et al., Case No. E-41526; Strauss v. Turner Broadcasting Sys., Inc., et al., Case No. E-41538; Hoffman v. Ted Turner, et al., Case No. E-41544; Barry v. Turner Broadcasting Sys., Inc., et al., Case No. E-41545; Mersel and Mersel v. R.E. Turner, et al., Case No. E-41554; Friedland and Friedland v. Turner Broadcasting Sys., Inc., et al., Case No. E-41562; Schwarzchild v. Turner Broadcasting Sys., Inc., et al., Case No. E-41586; Turner and Hanson v. Turner Broadcasting Sys., Inc., et al., Case No. E-041637; H. Mark Solomon v. Turner Broadcasting Sys., et al., Case No. E-41685; Shores v. Turner Broadcasting Sys., Inc., et al., Case No. E-41749; and Krim and Davidson v. Turner Broadcasting Sys., Inc., et al., Case No. E-41779). Two of 17 18 the complaints filed in Georgia were filed after the Mergers were approved (Altman v. Turner Broadcasting Sys., Inc., et al., Case No. E-43205; and Joyce v. Tele-Communications, Inc., et al., Case No. E-43321). The plaintiff in Altman filed a voluntary dismissal of that action without prejudice on November 10, 1995. On November 13, 1995, Judge Elizabeth Long, to whom all remaining actions had been assigned, consolidated all actions except the Joyce action. On December 20, 1995, the defendants filed answers in response to the Second Amended Complaint (the "Second Amended Complaint") previously filed in Lewis on November 1, 1995. On January 19, 1996, the defendants in these actions filed a Motion for Judgment on the Pleadings on all claims asserted in the Second Amended Complaint on the grounds that, under Georgia law, the valid grant of dissenters' rights to the Company's shareholders with respect to the merger involving the Company (the "TBS Merger") prohibits plaintiffs from maintaining the claims asserted in the Second Amended Complaint. On January 31, 1996, the Court consolidated the Joyce action with the other consolidated actions, and ordered plaintiffs to file a consolidated amended complaint. Additionally, the Court stayed discovery in these consolidated actions until the Court rules on the Defendants' Motion for Judgment on the Pleadings. On February 29, 1996, plaintiffs filed their Third Amended Consolidated Supplemental and Derivative Class Action Complaint (the "Third Amended Complaint"). The Third Amended Complaint, which includes a derivative claim, alleged, among other things, that the terms of the TBS Merger are unfair to the Company's shareholders and that the defendants have breached or aided and abetted the breach of fiduciary common law and statutory duties owed to the Company's shareholders. The Third Amended Complaint further alleged that the defendants acted fraudulently in negotiating and approving the TBS Merger, that the approval of the TBS Merger by the Company's Board of Directors was fraudulently obtained, and that the vote of the Company's Board of Directors approving the TBS Merger did not comply with the Company's Restated Articles of Incorporation and Bylaws or with Georgia law. Among other relief demanded, the Third Amended Complaint sought damages, an injunction against the consummation of the TBS Merger and related transactions, and an auction of the Company. On April 1, 1996, defendants in this action filed motions for judgment on the pleadings on all claims asserted in the Third Amended Complaint (the "Defendants' Motions"). On June 17, 1996, the Court transformed the Defendants' Motions into a motion for summary judgment with respect to two of the plaintiff's claims, and denied the plaintiff's request for discovery on those claims. The Court has not yet ruled on the Defendants' Motions. On September 13, 1996, Plaintiffs filed a Motion for Preliminary Injunction requesting that the Court enjoin the consummation of the TBS Merger. In this motion, Plaintiffs contended that the TBS Merger should be enjoined because the six members of the Board of Directors of the Company who voted in favor of the TBS Merger were interested in the transaction under the Company's Bylaws and thus precluded from voting on the transaction. On September 19, 1996, Plaintiffs then filed a Motion for Leave to File a Fourth Amended Complaint. Plaintiffs' proposed Fourth Amended Complaint contains essentially the same claims asserted in the Third Amended Complaint as well as additional allegations that the purported grant of certain option and severance arrangements to four of the Company's directors who voted in favor of the TBS Merger rendered those directors interested in the transaction under the Company's Bylaws. After 18 19 limited discovery on the issues implicated by Plaintiffs' Motion for Preliminary Injunction, the Court held a hearing on Plaintiffs' Motion on October 2, 1996. On October 3, 1996, the Court entered an Order denying Plaintiffs' Motion for Preliminary Injunction. The Company intends to defend vigorously these actions. By letter dated October 20, 1995, plaintiffs in certain of the Georgia actions described above made a demand upon the Company to repudiate the agreement for the sale of the stock of Turner Sports Programming, Inc. which owns a 44% interest in SportSouth Network, Ltd. and the fee authorized to be paid by the Company to one of its advisors in connection with the Mergers as corporate waste or, absent repudiation, to seek indemnification from any officers or directors of the Company who authorized the challenged matters. These plaintiffs indicated that a shareholders' derivative suit seeking injunctive relief would be filed in less than 90 days, which claims were asserted four days later in the first amended complaint filed in Lewis and later asserted in the Second Amended Complaint, the Third Amended Complaint and the proposed Fourth Amended Complaint. The Company's Board of Directors has established a committee of directors to investigate such claims. 19 20 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 11 Computation of Earnings per Common and Common Equivalent Share. 27 Financial Data Schedule (for SEC use only). (b) Reports on Form 8-K On September 6, 1996, the Company filed a Current Report on Form 8-K which described (i) the previously reported transactions contemplated by the Amended and Restated Agreement and Plan of Merger, dated as of September 22, 1995, among the Company, Time Warner, TW Inc., Time Warner Acquisition Corp. and TW Acquisition Corp. (the "Merger Agreement") as further amended by Amendment No. 1, dated August 8, 1996, to the Merger Agreement and (ii) the Agreement Containing Consent Order (including the Related Interim Agreement) executed by the Company, Time Warner, Tele-Communications, Inc. and Liberty Media Corporation and submitted to the Federal Trade Commission. 20 21 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: November 14, 1996 21 EX-11 2 COMPUTATION OF EARNINGS 1 EXHIBIT 11 COMPUTATION OF FULLY-DILUTED EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 -------------------- -------------------- Net income applicable to common stock $ (21,621) $ (20,158) Add: Interest expense on zero coupon subordinated convertible notes due 2007 4,948 14,572 Interest expense on 6.5% convertible notes 0 344 Subtract: Additional income taxes (2,326) (7,011) ---------- ---------- Adjusted net income applicable to common stock $ (18,999) $ (12,253) ========== ========== Primary weighted average number of shares outstanding 208,727 208,001 Add: Common shares issuable assuming conversion of convertible notes due 2007 7,440 7,440 Common shares issuable assuming conversion of 6.5% convertible notes for applicable period 0 364 Common equivalent shares issuable assuming conversion of Class C Convertible Preferred Stock 74,382 74,382 Shares issuable upon exercise of stock options 18,519 18,519 Subtract: Shares which would have been purchased with proceeds from exercise of such stock options 12,983 12,983 ---------- ---------- Weighted average number of common stock, common stock equivalents and convertible shares, assuming full dilution 296,085 295,723 ========== ========== 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 227,755 227,393 ========== ========== Earnings per share and common stock equivalent of Class A and Class B Common Stock $ (0.06) $ (0.04) ========== ==========
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. 2 EXHIBIT 11 TURNER BROADCASTING SYSTEM,INC. COMPUTATION OF PRIMARY EARNINGS PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, 1996 SEPTEMBER 30, 1996 ------------------ ------------------ Net income applicable to common stock $ (21,621) $ (20,158) =========== =========== Weighted average number of shares outstanding during the period 208,727 208,001 Weighted average number of common stock, common stock equivalents and converted shares outstanding 208,727 208,001 =========== =========== 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 140,397 139,671 =========== =========== Earnings per share and common stock equivalent of Class A and Class B Common Stock $ (0.10) $ (0.10) =========== ===========
No common stock equivalents are included in the calculation of primary earnings per share due to their anti-dilutive effect on net loss for the period. EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 83,885 0 652,310 (39,910) 0 1,650,382 718,121 (332,276) 4,797,185 917,060 2,767,201 0 260,438 13,048 178,055 4,797,185 2,760,693 2,760,693 1,857,777 2,679,230 0 11,873,112 123,415 (41,952) (21,794) (20,158) 0 0 0 (20,158) (0.10) 0.00
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